Coal mining companies are facing a dilemma in deciding whether to obey the mandatory requirement to supply 25 percent of production to the domestic market as recent data shows that absorption would remain low until year-end.
It is feared that low absorption will affect the companies’ bottom line further as they are mandated to sell their coal at a lower price to help state electricity firm PLN maintain prices.
The Indonesian Coal Mining Association (APBI) estimated that by year-end, the realization of the domestic market obligation (DMO) on coal supply would only reach 20 percent because of low absorption, resulting in a 5 percent oversupply.
APBI chairman Pandu Sjahrir expressed skepticism to the notion that the domestic market could reach 25 percent absorption next year.
“It [low absorption] is being seen in the data on [coal domestic consumption]; so, the next question is how accurate was the calculation at 25 percent [for next year]?” APBI chairman Pandu Sjahrir said in Jakarta on Wednesday.
The government has set the target of national coal production at 485 million tons this year, 25 percent of which, or 121.25 million tons, should be allocated for the domestic market.
Ninety-two million tons of the target should be supplied to PLN, while the rest should go to industry, such as cement producers.
However, data from the Energy and Mineral Resources Ministry shows that the realized allocation for PLN until September was only 66.9 million tons, or 72.7 percent of the target for the year.
Meanwhile, the overall realization of the mandatory supply for the domestic market stood at 84 million tons, or 69.2 percent of the target.
The government in March issued a derivative regulation to support the policy that set the ceiling coal price for PLN at US$70 per ton. It equals 75 percent absorption of all domestic coal supply as PLN has been ordered by the government to maintain affordable electricity prices.
The government remains firm in its policy despite coal miners’ call for revision, stressing its conviction that the full-year 25 percent absorption target can be achieved as it was still waiting for data from all players.
The ministry’s director general for mineral and coal Bambang G. Ariyono said on Monday that there was no plan to revise the policy, including its penalty in the form of a production cut next year for miners failing to meet the 25 percent obligation.
His statement came less than a month from the making of the 2019 mineral and coal work program and budget, which will roll out the coal production target for next year.
“The penalty in the form of a production cut is still in place. […] the problem lies with the miners themselves if they can’t fulfill the [25 percent mandatory supply] because of a mismatch between coal specification demanded by PLN,” he said. “Besides, we have legalized a quota transfer scheme for them.”
Bambang referred to a business-to-business scheme that allows miners with coal specification demanded by PLN — low-quality coal — to transfer some of their supplies to miners that have higher quality coal.
However, APBI executive director Hendra Sinadia said the scheme still had a loophole as he believed that there were more miners with mismatched specification of coal compared to those that already fulfilled PLN’s demand.
“We hope that the government will reconsider the penalty as not all miners will get a quota [of coal with PLN’s specification], because there are not many miners with surpluses to cover all the needs,” he said.
Responding to the situation, Indonesian Mining Institute chairman Irwandy Arif suggested that unsuitable miners be given the option to be charged a certain amount of US dollar per ton that would be allocated as an incentive for PLN, a scheme similar to an incentive in the 20 percent blended biodiesel policy.
“Therefore, the miners can sell their coal to PLN at the market price, but the latter will get an incentive [from the industry],” he said on Wednesday.
Source: Stefanno Renard Sulaiman / The Jakarta Post
01 November 2018