On Tuesday (1/2/2022), the prohibition on coal exports from Indonesia will be lifted. As stated by Director General of Mineral and Coal, Ridwan Djamaluddin, the ban lifting of coal exports was based on the condition of coal supply at PLTU, PLN, and IPP, which were getting better. However, this provision only allowed to proceed for companies who have completed their domestic market obligations (DMOs).
Domestic Market Obligations on Practice
The DMO requires miners to sell a quarter of their annual output to the local market at $70 per ton or less than the prevailing global price. Many miners, tiny and midsize companies, have flouted the law, who export internationally to boost their profit. Miners will not be able to export coal until they reach their DMO under a new law that has entered into effect on January 19th. In addition to a 60-day suspension of operations and punishments, those who fail to complete their monthly DMO fulfilment goals will be subject to the DMO compliance program. Their licenses will be withdrawn if they do not pay the fine.
Coal export restrictions are intended to make sure mining companies obey the requirement to put their profits on the table and fulfil domestic market demand. The old limitation has been in place for a month now, and local media reports that roughly 200 mining companies have been given the green light to export after fulfilling their DMO requirements or paying fines. In Indonesia, there are over 600 mining enterprises.
To avoid the same thing as January 1st, where coal export is limited, Indonesia attempts to prevent a media embargo. Authorities said that the State Electricity Company (PLN) had run out of stockpiles. They were putting the power on Java and Bali islands at risk of being cut off if miners failed to meet domestic supply requirements. Indonesia's state utility, PLN, is based in Jakarta. Meanwhile, Jakarta has implemented a new law in response to a lack of compliance with domestic supply restrictions, which resulted in higher fines for violators.
Legislators discussed the DMO system earlier this month, and there is a probability that changes in the future may be made. It is a possibility that PLN may pay market prices for local coal rather than DMO-mandated prices and that miners will be paid levies to make up the difference. Coal export restrictions are intended to make sure mining companies obey the requirement to put their profits on the table and fulfil domestic market demand.
The True Intention of Coal Export
Export bans can backfire and have unanticipated economic implications if they are used in the wrong way. However, they can be helpful when used to achieve a specific goal. A shift toward resource nationalism in Indonesia has led to an increase in the use of them to achieve particular governmental objectives through the management of natural resources. A comparable export prohibition on raw nickel ore has pushed billions of dollars of investment into Indonesia's domestic refinery industry. It's possible that these export limits, which have been widely criticized for being ineffective, are working as planned.
This has significant ramifications for Indonesia's clean energy aspirations and the country's overall industrial policy. Controlling electricity prices even during a worldwide energy shortage is a tremendously potent tool in the hands of any government. As long as the coal is still circulated in Indonesia, the government can impose immense control over it. The state's willingness to give up this power and what it will obtain in return must be addressed in any meaningful effort to reduce carbon emissions.
Power generation in Indonesia has significant political-economic challenges because of Indonesia's desire to provide its citizens with low-cost electricity. Similarly, the Indonesian export ban on coal, which sparked instant protests from important importers, may be an example of the Asian great demand for coal. The region's migration away from coal power would be a long and very challenging process without coordinated and forward-looking steps by Asian nations.
(sources: Nikkei, Bisnis Indonesia, the diplomat)