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Clarity on rules, predictability needed to avert coal crisis in Indonesia: panel

Transparency regarding the allocation of coal to the domestic market in Indonesia, some degree of demand-supply predictability and clarity on regulations over failure to meet local supply requirements are essential to avoid a crisis in the future, industry experts said at a webinar Feb. 22.

Indonesia’s domestic coal stocks slipped to critically-low levels at state-owned PT Perusahaan Listrik Negara, or PLN, in December 2021 as producers failed to meet their domestic market obligation, or DMO, under which they are required to supply 25% of their annual production to the local market. This led to a three-week export ban in January, causing disruption in the global markets and a rise in prices as supply fell extremely short.

“While we support government efforts, the shortage of coal happened when it shouldn’t have,” said MS Marpaung, chairman at Djakarta Mining Club and Coal Club Indonesia.

“The point is why did the crunch happen, there must be some degree of predictability. It would have been ideal to have a proper enforcement of DMO,” Norman Bissett, foreign legal consultant at Hadiputranto Hadinato & Partners said.

When asked how a similar crisis can be avoided in the future, several participants said there is a need for transparency about how domestic coal gets allocated to PLN and other independent power producers.

“It looks like proper enforcement of DMO hasn’t happened systematically throughout the year. There are a lot of regulations, warnings after warnings, but not clear that how sanctions will be imposed; more clarity is needed on consequences,” Bissett said.

The attendees of the webinar highlighted the importance of DMO fulfilment being monitored monthly rather than yearly, which the government has also decided to do. Participants pointed out that the last revision to DMO rules was before the pandemic happened and since the demand-supply dynamics have changed, a new mechanism to incentivize producers in terms of pricing must be considered.

While the export ban was lifted Jan. 20, producers focused on fulfilling backlogs leading to further supply tightness for Indonesian coal.

Logistical bottlenecks such as unavailability of vessels and barges, concerns about delay in coal discharge at PLN, and pending backlogs from January lifted Indonesian coal prices, S&P Global Platts reported Jan. 25. The price of Indonesian 4,200 kcal/kg GAR coal rose from $63.45/mt FOB Dec. 31 to $80.05/mt Feb. 11, before easing to $76.05/mt Feb. 21, Platts data showed.

Sources said the government is now trying to sign maximum number of long-term contracts with miners and not traders, which experts believe would help in maintaining accountability.

“Not sure where the shortfall to PLN actually came from, mismanagement is the biggest issue. PLN doesn’t seem to control its flow of energy sources,” said Ben Lawson, vice chairman at Djakarta Mining Club and Coal Club Indonesia at the webinar titled ‘Introduction to new DMO Regulation’.