Indonesia Gov’t Undecided on New Coal Policy
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Indonesia President Joko “Jokowi” Widodo will decide on Tuesday (31/07) whether the government’s policy on coal for domestic use should be revised, considering both the need for price stability and for reducing the current external deficit.
The government in March set a ceiling price for 25 percent of its coal production bound for state utility company Perusahaan Listrik Negara at $70 a metric ton, in order to keep electricity prices stable ahead of the 2019 elections.
The quota and price cap mean miners miss out export revenues amid the commodity’s rising global price, to the tune of $5 billion a year, a substantial amount that could reduce Indonesia’s current account deficits, Coordinating Maritime Affairs Minister Luhut Pandjaitan said on Monday (30/07).
The government may charge a coal sales tax to coal companies at between $2 and $3 per ton to subsidize PLN. A new agency could be established to manage the process.
The government may also revise the 25 percent quota to allow coal with energy levels above 4,500 kilocalories per kilogram (kcal/kg) or below 4,000 kcal/kg to be exported, because PLN needs it between 4,000 and 4,500 only, said Rosan Roeslani, chairman of Indonesia’s Chambers of Commerce and Industry (Kadin), who was present in a discussion with top government officials on Monday.
All revisions will still need to be discussed with the coal and power industry, and their impact on state revenue would need to be calculated, Luhut said.
“Even if this happens it will probably be next year at the earliest,” he said.
“Even if this happens it will probably be next year at the earliest,”
Indonesia is the world’s top exporter of thermal coal, and its economy has benefited from rising demand for the dirty fuel — which hit $104.65 a ton in July — the highest since May 2012.
Expert and consumer groups are against the government’s proposal.
“Abandoning the domestic coal price will be a blunder policy, which will not increase foreign exchange from coal exports to reduce the balance of payment deficit, but only increases the income of coal businesses as well as the cost of production for PLN,” Fahmy Radhi, an energy analyst at Gadjah Mada University, said in a statement on Sunday.
PLN would bear $3.68 billion in additional costs to buy coal at the current market price, Fahmy said. Even with the sales tax on coal companies, which is estimated to bring $1.28 billion, PLN would still be left with an additional expense of $2.40 billion.
PLN has been under financial pressure for the past few years, trying to meet the government’s plan for 35,000 megawatts of additional power capacity.
In September, Finance Minister Sri Mulyani Indrawati sent an official letter to Energy and Mineral Resources Minister Ignasius Jonan and State Enterprises Minister Rini Soemarno, warning of PLN’s poor financial performance.
The company suffered losses of Rp 6.49 trillion in the first half of this year. In the same period last year it recorded a net income of Rp 510 billion.
“If the rule is really implemented, then it means the government favors more the interests of a handful of people [coal businessmen] rather than the interests of a larger community — electricity consumers,” Tulus Abadi, managing director at the Indonesian Consumer Protection Foundation (YLKI), said in a statement.
Questions & Answers
Q.When will President Widodo decide on the domestic coal policy revision?
When will President Widodo decide on the domestic coal policy revision?
President Widodo is scheduled to make a decision on the domestic coal policy revision on Tuesday, 31 July. This decision considers both price stability and reducing the external deficit.
Q.What is the current ceiling price for coal supplied to the state utility company?
What is the current ceiling price for coal supplied to the state utility company?
The current ceiling price for 25% of coal production bound for the state utility company Perusahaan Listrik Negara (PLN) is $70 a metric ton. This policy aims to keep electricity prices stable.
Q.How much additional cost would PLN face if it bought coal at the current market price?
How much additional cost would PLN face if it bought coal at the current market price?
PLN would incur an additional cost of $3.68 billion if it bought coal at the current market price. Even with a proposed sales tax, PLN would still face a $2.40 billion extra expense.
Q.What energy levels of coal does PLN primarily require for its operations?
What energy levels of coal does PLN primarily require for its operations?
PLN primarily requires coal with energy levels between 4,000 and 4,500 kilocalories per kilogram (kcal/kg). Coal outside this range might be permitted for export under revised policies.
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