FOCUS: Govt should improve local market after issuing coal DMO regulation
Monday, February 8 2010 - 01:48 AM WIB
Coal businessmen welcome the issuance of the regulation on coal domestic market obligation (DMO) to secure its supply on the domestic market, but they are apparently divided in seeing whether its implementation will be effective or not.
As the world sees the coal demand on the rise, particularly from China and India who needs the energy source to power their robust economic growth, Indonesia?s coal exports have been increasing during the last ten years from only 58 million tons in 2000 to more than 150 million in 2009. The Indonesian government has moved to secure the supply of the energy source for local needs by recently issuing the ministerial regulation No.34/2009 on coal DMO.
The new regulation refers to the Mineral and Coal Law No.4/2009 and the Presidential Decree No.5/2006 that require coal contribution to the national energy sources be increased to 35 percent by 2025. Under the regulation, coal producers failing to sell specified portions of their production on the local market and traders or consumers failing to comply with the principle of the coal DMO, by for example exporting their stockpile, will get administrative sanctions that may incur financial losses.
Bob Kamandanu, the general chairman of Indonesian Coal Mining Association (APBI), noted recently that the government needed not to worry that the DMO implementation may have adverse impacts on the country?s coal producers as all of them have committed to selling 25 percent of their production on the local market.
Big companies like PT Tambang Batubara Bukit Asam (PTBA), PT Adaro Energy, PT Kideco Jaya Agung, and PT Berau Coal will apparently have no problem in implementing the regulation as they have been selling big portions of their production on the local market, particularly to the state-owned electricity company PT Perusahaan Listrik Negara (PLN), the country?s largest buyer of coal, under several-years contracts.
"It?ll be no problem for us to implement it as currently some 70 percent of our coal production is sold on the domestic market," PTBA?s president director Soekrisno told the press recently.
Barnabas Irianto, a coal consultant-turned-trader in South Kalimantan, however, doubted that the DMO regulation could be implemented effectively. "There are hundreds of coal producers with their products having different specifications, but the local market is limited only to certain specification. They will find it hard to sell their coal if only relying on PLN, which only buy coal with calorie content of around 5,000 kcal/kg," he said.
Based on PLN data, the state-owned electricity firm and Independent Power Producers (IPP) that have signed contracts with PLN will need this year about 45 million tons of coal or about 65 percent of the estimated total local consumption of 70 million tons. Total coal production is expected to increase from 230 million tons in 2009 to 250 million tons this year.
He added that coal traders were also discouraged from selling on the local market due to the problem of paying system. Although traders have got payment guarantee letters from banks, they will not get paid until after they have received letters from buyers notifying on the arrival of the purchased coal.
"Such letters from buyers often came very late, causing late bank payments and cash flow problems. Cash flow is very important for us businessmen. Without a good cash flow, we could go bankrupt," said Barnabas, who until recently worked with the Australian company PT. GMT Indonesia, which is involved in surveying and trading of coal in South Kalimantan.
Singgih Widagdo, the executive director of Indonesian Coal Society noted three main problems related to PLN that would stand in the way of implementing the regulation.
"First, PLN, as the largest buyer of coal, has no blending facility. Without a facility to mix coals with different specifications, it will only buy coal with calorie content of around 5,000 kcal/kg for its power plants. So producers of coal with calorie content of below 5,000 Kcal/kg or above will find it difficult to sell their products," he said.
"Second, PLN only buys coal based on tender system. It will sign several-years contracts with certain tender winners, leaving the rest in difficult situation to find other buyers," he said.
The third problem, he said, concerns prices. Based on the regulation, coal prices will be always referred to the international prices. But PLN has only limited capacity in buying up to certain level of prices as it is burdened with the public service obligation (PSO) to provide subsidized electricity for the general public. Basically, it is the government that decides its electricity prices and the margin it is allowed to get.
According to him, if the government wants to see the DMO regulation to succeed, it should address the three problems soon. The problems of prices and tender system can be solved quickly. But the blending facility problem will take longer time to solve as its development will need one or two years.
"Considering the importance of energy security to our country, the government should seriously follow up its DMO regulation by taking measures to solve the problems facing the local market. And perhaps it needs to set up a new institution, which will function like BP Migas in the oil and gas sector, to supervise the coal business," he concluded. ? end
The author is an editor of Petromindo.Com. He can be contacted at besalicto@petromindo.com