Dozens of coal miners are at risk of losing hundreds of millions of US dollars in potential revenue as a result of the government’s decision to require mining companies to sell coal at discounted prices to state electricity firm PLN under the domestic market obligation (DMO).
The Energy and Mineral Resources Ministry announced on March 9 its decision to cap the country’s coal reference price (HBA), which is used to calculate a company’s coal selling prices, for domestic power generation at a maximum level of US$70 per ton until 2019.
In comparison, the actual HBA is $94.75 per ton in April.
With the government’s mandate to maintain current electricity prices until 2019 and with coal accounting for more than half of PLN’s electricity supply cost, the policy is expected to ease the company’s burdens.
However, coal miners are likely to suffer from it. For instance, PT Kaltim Prima Coal (KPC), Indonesia’s largest coal miner by production volume, calculated that it would lose Rp 2.5 trillion ($181.75 million) in potential revenue as it would have to supply 12.7 million tons of coal to PLN in 2018 under the new price formula.
“We will still comply with the new DMO policy, though there will certainly be an impact because of the price discrepancy,” KPC director Eddie J. Soebari said during a hearing with the House of Representatives Commission VII overseeing energy and mining on Tuesday.
KPC, a subsidiary of publicly listed coal miner PT Bumi Resources, is aiming to jack up its coal production by 15.5 percent to 67 million tons in 2018.
Meanwhile, another Bumi coal-mining subsidiary, PT Arutmin Indonesia, estimated it would lose $67.8 million in potential revenue in 2018 based on a calculation using the actual HBA level of $94.75 per ton in April.
In 2018, Arutmin plans to produce 28 million tons of coal, 7.4 million tons of which will be supplied to PLN.
Furthermore, PT Adaro Indonesia, the biggest coal mining subsidiary of publicly listed PT Adaro Energy, said it would conduct various efficiency measures to cope with and support the government’s new coal-pricing policy.
In total, Adaro Energy is planning to jack up its annual coal production by 4.2 to 8.1 percent to around 54 to 56 million tons in 2018, of which at least 9.46 million tons must be set aside for the domestic market.
Moreover, coal miners PT Kideco Jaya Agung and PT Berau Coal calculated potential revenue losses of Rp 1.1 trillion ($79.9 million) and $70 million, respectively, in 2018.
Berau Coal legal director Edy Santoso said the government could have allowed for more flexibility when setting the policy.
“For example, when the global prices stand at around $100 per ton, the HBA price will be set at $70 per ton. But the government could increase or lower the HBA level when the global prices fluctuate,” Edy said.
PT Trubaindo Coal Mining, meanwhile, said it would lose potential revenue of around $22 million this year following its obligation to supply 1.1 million tons of coal for domestic power generation from its total production of 4.4 million tons.
“We will not see losses in our operations, but our revenue will certainly fall,” Trubaindo Coal Mining director Stephanus Demo Wawin said.
PLN calculated that the annual coal demand for nationwide power generation would gradually increase from 82.2 million tons last year to 92 million tons in 2018 and 145 million tons in 2026.
The utility firm estimated that, through the new coal price formula, it would be able to save around Rp 18 trillion if it used 85 million tons of coal this year and about Rp 20 trillion if it utilized 89 million tons of coal.
“The required DMO is just 25 percent of the national coal production. Coal miners are still able to sell 75 percent of their coal production in line with market prices. So it’s not a big deal,” Energy and Mineral Resources Ministry spokesperson Agung Pribadi said.
Source: Viriya P. Singgih / The Jakarta Post
4 April 2018