Indonesia has no immediate plans to tweak thermal coal HBA: ministry sources

The Indonesian government is not looking to change the methodology for its benchmark thermal coal reference price anytime soon, despite questions raised by some miners on accuracy and criticism over higher royalty payouts, senior energy ministry officials told S&P Global Commodity Insights.

The benchmark, also called Harga Batubara Acuan, or HBA, is the basis for determining Indonesian coal product prices and calculating the amount of royalty producers must pay for each metric ton of coal sold overseas. The government had modified the method used to calculate the country's benchmark coal prices in February this year.

"From our understanding of the coal market and interaction with the top miners, the new HBA is closer to the actual prices at which products are sold overseas and we have also made some modifications as deemed fit," an official at the ministry of energy and mineral resources said on the sidelines of the Coaltrans conference earlier this week. "We can't be changing it every time a few participants have issues with it," according to the official, who did not wished to be named as he was not authorized to speak to media.

While the HBA price before February considered inputs of price reporting agencies including Platts, part of S&P Global Commodity Insights, Argus Media and globalCOAL, the new HBA regime considers price of four coal grades originating from Indonesia and is based on the actual selling price of cargoes from the previous two months, with a 70:30 weightage for the first and the second month, respectively.

From March, the reference prices for 6,322 kcal/kg GAR, 5,200 kcal/kg GAR and 4,200 kcal/kg GAR grades were published, but the government changed some grades slightly in August and notified prices for 6,322 kcal/kg, 5,300 kcal/kg GAR, 4,100 kcal/kg GAR and 3,400 kcal/kg GAR grades thereafter.

Prices in the Asian thermal coal markets have been on the rise amid robust demand from India and China against a backdrop of festive and winter restocking needs, respectively, breaking the over three-month streak of dull demand. Platts assessed FOB Kalimantan 4,200 kcal/kg GAR at $57/mt Sept. 28, up from $50/mt at the start of the month.

HBA for metcoal, domestic demand priority

"We don't want a confusion on overlapping of thermal and met coal; for some it may seem that the current HBA may also be a reference for metallurgical coal. To make it more transparent and bifurcated, we'll come out with a separate HBA for met coal, which will also be published every month," another official said.

Meanwhile, amid heightened domestic demand for coal from the power and non-power sector, the world's largest coal exporter will look to prioritize domestic needs even if it comes at a cost of losing coal export revenues, which form the backbone of the government's coffers, ministry officials said.

"With the economy growing, demand from industries like nickel, aluminum and cement is projected to grow exponentially, which in turn will further create higher needs for coal. We are sure that if domestic market supply rules need to be strengthened, we will do it but everyone has to contribute to economic growth," said another energy ministry official. Emails sent to the ministry did not elicit a response as of press time.

Indonesia has a domestic market obligation, or DMO, in place, that mandates miners to supply 25% of their annual production locally, failing which heavy fines can be imposed and mining business permits can be revoked. The country has so far this year produced nearly 600 million mt thermal coal, while exports have touched around 300 million mt, official data showed. It produced 687 million mt of coal in 2022, recording 12% growth on the year and up from the target of 663 million mt set for 2022. The target for 2023 is at 694 million mt.

In another development, on continuous allegations of coal miners with regards to unfriendly government policies and overburden of taxes, royalties and blocking of cash flows, ministry officials said the regulations on miners are formed keeping in mind transparency and accountability in the coal industry, where chances of malpractice can come up easily.

While coal producers have been complaining about higher royalty burden and stringent DMO regulations, to top it up, the government has now mandated the country's commodity exporters to deposit about a third of their dollar-denominated income from international sales in the domestic banks, which many small miners believe will weaken cash-flows and shrink margins.