Indonesia's state utility PLN would buy coal at market prices in a way to guarantee domestic energy supply, a senior official said on January 10.
Currently, utilities in Indonesia buy coal from domestic suppliers through the domestic market obligation (DMO) regulation, where miners are required to provide at least 25% of their output to domestic utilities at a maximum price of $70/t.
The price ceiling has been far lower than export prices and miners prefer to sell coal abroad rather than domestically to pursue higher profits, resulting in extremely low inventories at PLN and independent power producers.
Coordinating Minister of Maritime and Investment Affairs Luhut Pandjaitan on January 10 said that the government will come up with a new pricing mechanism so that PLN would pay at market price. The mechanism may include collecting a coal levy as a medium-term solution.
The implementation of the new mechanism will come after the establishment of a public service agency to regulate the difference between PLN's purchase price and the market price.
In addition, the government has also decided to replace the FOB term with the CIF term to settle deals between PLN and domestic suppliers so that suppliers will take care of transport risks.
Luhut also instructed power plants are no longer allowed to buy coal from traders but directly from mining companies. The step, he said, would not affect the basic power tariff or production costs at PLN.
The Indonesian government would reopen coal exports in stages pending a further meeting on January 12. Within 14 days after the export is opened, all supply contracts for PLN and independent power producers in 2022 should be completed along with the monthly allocation to every coal supplier and power plant, Luhut said.
14 vessels loaded with coal are allowed to ship abroad on January 11 after coal supplies to PLN have been largely improved, Luhut said.
The minister said in a statement that the supply shortage of 2.1 million tonnes reported on January 10 has been fulfilled with additional supply contracts. The government asked coal stockpiles to reach at least 15 days of use at normal power plants and 20 days at remote and critical power plants by the end of this month.
(Writing by Alex Guo Editing by Harry Huo)
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