Jokowi Signs Coal Price Cap Regulation

Coal-based power plants produce nearly 60 percent of Indonesia's electricity. (Reuters Photo/Pawel Kopczynski)

By : Adinda Normala & Rangga Prakoso | on 10:09 PM March 07, 2018
Category : Business, Commodities

Jakarta. President Joko "Jokowi" Widodo has revised a regulation on coal prices to help float state utility company Perusahaan Listrik Negara, or PLN, and provide cheap electricity to people at a cost of coal miners' profit.

The revision makes way for authorities to cap the prices of coal sold to domestic power plants — which now account for about a fifth of miners' sales — at a time when the commodity's price rebounds, as it has now doubled from its five-year low in 2015.

Previously, the regulation required coal miners to sell only a certain amount of coal to the local market.

"The [revised] regulation has been signed by the president," director general of coal and minerals at the Energy and Mineral Resources Ministry, Bambang Gatot, said on Wednesday (07/03).

He added that miners will sell coal to local power plants at a discounted price determined by the ministry.

The government decided to keep prices of subsidized electricity stable until the end of 2019, in a bid to maintain national purchasing power.

PLN is incapable of shouldering the additional cost price if it continues to buy coal at the current market price. The Indonesian benchmark price for coal is now $101.86 per metric ton, in February 2015 it was $50.92 per ton.

"[Without the cap] the loss would be Rp 21 trillion [$1.53 billion]. It was around Rp 16 trillion last year," PLN president director Sofyan Basir said.

PLN, which spearheads Jokowi's 35,000-megawatt capacity and power grid expansion project, has been under financial pressure.

Last year, Finance Minister Sri Mulyani warned Energy Minister Ignasius Jonan and State-Owned Enterprises Minister Rini Soemarno about PLN's ailing financial performance in the past three years.

Sofyan said the company has made some efforts to suppress the loss, including by shutting power plants that have high operational costs and by reducing coal transports from production areas.

PLN still needs the price to be capped, as coal-based power plants account for nearly 60 percent of the national electricity supply.

The new arrangement may hit the coal industry, which has not yet fully recovered from the 2013-15 coal market crash.

"At this time we're just able to catch our breath and invest again, which is crucial to increase our coal reserves," said Hendra Sinadia, the executive director of the Indonesian Coal Mining Association (APBI).

According to data from the ministry, Indonesia's coal reserves are now 28 billion tons, which may be enough for 70 years if production is maintained at the current level.

"The question now is how to make pricing policies that can save PLN and, at the same time, allow us to invest," Hendra said.

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