Indonesia’s coal miners will no longer be able to meet domestic sales obligations by supplying coal to off-grid power plants, a government official said on Thursday, in a move designed to alleviate on-grid power shortages.
The move is expected to improve coal supply to the on-grid power sector, which has been struggling with outages, said Energy and Mineral Resources Ministry official Tri Winarno. He did not say when the new policy would be implemented.
Under Indonesia’s so-called “domestic market obligation” (DMO) scheme, coal miners are required to sell at least 25% of their output to domestic buyers at capped prices.
The price of DMO coal sold to state electricity utility PLN and other independent power producers is set at a maximum of $70 per metric ton and $90 for other select industries like cement, fertilisers and textiles.
The price ceiling for the power sector has remained unchanged since 2018, even though global coal prices have risen amid supply constraints in Indonesia and China.
However, there is no price cap for DMO sales to off-grid power plants, also known as “captive power plants”, which are typically built by large industrial facilities to meet their own electricity needs. Indonesia’s massive nickel smelting sector is among the biggest users of captive power plants.
With no cap, miners can earn more money selling their coal to captive plants while still complying with DMO.
“The widening gap between market prices and the prices at which coal is sold to PLN – a disparity that has grown year after year – makes meeting the DMO the least financially attractive option for coal companies,” non-governmental organisation Trend Asia said in a report this month.
Indonesia’s coal miner association did not immediately respond to a Reuters request for comment.
Indonesia is the world’s top exporter of thermal coal and most of its electricity is powered by coal. However, there have been reports of prolonged power outages in various parts of the country in recent months.
(Reporting by Bernadette Christina Munthe, Fransiska Nangoy; Editing by Martin Petty and David Stanway)
