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Indonesia leaves coal DMO, domestic price cap unchanged

Jakarta — Indonesia's President Joko Widodo has decided to keep the current price cap on domestic thermal coal procurement and is against revoking the domestic market obligation policy, a senior government official said Tuesday.

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The Indonesian government had proposed to revoke the current coal domestic market obligation policy and instead apply a levy on exports, and a decision was expected to be taken Tuesday at a cabinet meeting.

"Coal DMO, under president's guidance, has been decided to be the same as existing. There is no change and there is no new government regulation," minister for energy and mineral resources Ignasius Jonan said after his meeting with President Jokowi.

"The price mechanism is similar (with the existing one), no revocation. The president decided to let it run as existing," Jonan told reporters.

The coal DMO volume has been decided by the energy and mineral resources ministry, and the coal price capped at $70/mt FOB for domestic purchases by state-owned utility PLN will continue as per government's regulation, Jonan said.

"DMO is still following the nation's coal needs. Based on my calculation is 25%," Jonan said.

Under the existing regulation, coal companies have to allocate at least 25% of their annual coal production for the domestic market. Indonesia applied the DMO in March to ensure that domestic needs are met after more coal cargoes were diverted to the seaborne market because of higher price realization.

Given the high seaborne prices this year, the government introduced the cap of $70/mt on domestic procurement to ease PLN's financial burden as the utility is not allowed to increase the electricity tariff until 2019 when the presidential election takes place. Coal accounts for almost 50% of PLN's total power generation.

--Staff, newsdesk@spglobal.com

--Anita Nugraha, newsdesk@spglobal.com

--Edited by Jeremy Lovell, jeremy.lovell@spglobal.com