Gov’t Proposes Coal Blending Facility to Overcome DMO Issue

MINISTRY OF ENERGY AND MINERAL RESOURCES

REPUBLIC OF INDONESIA

PRESS RELEASE

NUMBER: 404.Pers/04/SJI/2021

Date: 16 November 2021

Gov't Proposes Coal Blending Facility to Overcome DMO Issue

The government is formulating a plan to construct a coal blending facility. This effort is made to ensure fairness in overcoming the issue of coal Domestic Market Obligation (DMO) for industries and mining companies.

Director General of Mineral and Coal, Ridwan Djamaluddin, said the proposal was being discussed internally by the Ministry of Energy and Mineral Resources (EMR). "We are conducting discussions, exchanges of views, and exercises to further improve the effectiveness of the 25% DMO policy," said Ridwan at a Hearing with Commission VII of the House of Representatives of the Republic of Indonesia (DPR RI) in Jakarta on Monday (15 /11).

Ridwan went on to say that some mining companies could not easily obey the DMO policy because their coal did not meet the specifications for the domestic market, and thus, it could not be absorbed domestically. "We encourage PLN in particular and other industries or users to build a coal blending facility which is managed by an SOE/private company to process various specifications of coal for domestic needs," explained Ridwan.

Another proposal is by designing a scheme to impose compensation on mining companies that do not meet the DMO. "The funds can also be used for various activities that increase the conformity level of coal products, be it as an additional subsidy or financial support for the coal blending facility," Ridwan continued.

Ridwan said that domestic coal consumption had always been lower than the national production level. Additionally, not all mining companies have a sales contract with domestic users.

Ridwan also explained that until October 2021, the national coal production hit 512 million metric tons, or 82% of the 2021 target of 625 million metric tons. In contrast, the realized DMO clocked up a small amount of 110 million metric tons.

New Price Scheme

In addition to the two proposals, the Ministry of EMR is formulating a scheme for ceiling and floor prices to anticipate price disparity on the market.

"We try to look for better opportunities to arrange and ensure fairness for (mining) business people," said Ridwan.

A ceiling price has been adopted for electricity generation for the public as well as for cement and fertilizer industries.

If the government did not enforce the policy, coal producers had tended to avoid making a contract with domestic coal consumers when coal commodity prices were high.

"When prices are high, (producers) would rather get fined if domestic coal prices are much lower than international market prices," Ridwan said.

Next, a floor price aims to protect producers so that they can still produce coal at an economic level when prices are low, continued Ridwan.

Another proposal is by arranging domestic sales contracts in a fixed price scheme with the price agreed on a Business-to-Business (B-to-B) basis. "This scheme will give certainty for both domestic producers and consumers of coal about price guarantee and supply volume," Ridwan concluded.

For the record, the government has determined the obligation of mining companies to fulfill domestic coal needs in Decision of Minister of EMR Number 139.K/HK.02/MEM.B/2021 on Fulfillment of Domestic Coal Needs.

The ministerial decision dictates that mining companies that do not meet the 25% DMO of the production plan or domestic sales contract are subject to an export ban, fine, or compensation. (IY)

Head of Bureau of Communication, Public Information Services, and Cooperation

Agung Pribadi (08112213555)

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