Relaxation of the 2020 DMO Policy Is Needed

ICMA WEBSITES – EDITORIAL (13 AUGUST 2020)

Relaxation of the 2020 DMO Policy Is Needed

As is known, the COVID-19 pandemic has an impact on all energy sectors in the country including the coal mining industry sub-sector where demand for coal imports has dropped dramatically so that commodity prices continue to decline to the lowest level in the decade. The fall in prices resulted in cash flow difficulties for companies, partly because the company had to bear the difference between the Coal Reference Price (HPB) as the basis for paying the royalty rate and the Actual Selling Price. In addition, the determination of the COVID-19 Pandemic as a national emergency situation by the Government of Indonesia was followed by a Large-Scale Social Restriction (PSBB) policy in several areas which reduced electricity use which ultimately resulted in a decrease in demand for coal use by the State Electricity Company (PLN). The decline in demand for PLN and the domestic industry will certainly affect domestic coal absorption and the percentage of DMO fulfillment.

With conditions like the above, ICMA company members remain committed to supplying PLN, especially those already under contract. As for other companies, of course, they continue to strive to fulfill the DMO's obligations. However, fulfilling the DMO obligations is certainly not easy for companies that produce coal whose quality cannot be absorbed by domestic consumers, both by PLN and other industries. On the other hand, the Minister of Energy and Mineral Resources Decree No. 261 K / 30 / MEM / 2019 concerning Meeting the Need for Domestic Coal in 2020 applies sanctions in the form of compensation that must be paid by the company if it cannot fulfill its obligations.

Therefore in order to maintain coal supply to the domestic market and at the same time coal miners not too burdened by the implementation of the compensation scheme, we have asked the Government to temporarily “relaxing” the 2020 DMO policy. In this regard we propose that the Ministry of Energy and Mineral Resources revises the Decree of the Minister of Energy and Mineral Resources No. 261/2019 especially in the application of sanctions so that for the implementation of the DMO sanctions in the form of compensation are not enforced. We are in the opinion that such sanction should not be applied if domestic market has been fulfilled. In this current market condition of which the trend likely to continue throughout this year, coal miners would compete to enter into domestic market to comply with the DMO requirement. Unfortunately the domestic demand is shrinking significantly due to the Pandemic. In view of this circumstance, we view that the temporary relaxation of the 2020 DMO would at least relief unnecessary financial burden for companies that cannot fulfill their DMO obligation.

                 

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