ICMA WEBSITES – EDITORIAL (19 AUGUST 2020)
Awaiting for Positive News on the Relaxation of the DMO Policy
The government is reviewing the implementation of the 2020 domestic coal supply obligation (DMO) due to the weak economy amid the Covid-19 Pandemic. This initiative is also a response to a request from APBI which has been submitted through an official letter number: 018 / APBI-ICMA/V/ 2020 dated 20 May 2020 to the Minister of Energy and Mineral Resources regarding the Submission of Responses and Recommendations Regarding the Implementation of Fulfillment of Domestic Coal Supply Obligations (DMO) as The impact of the Covid-19 Pandemic. As a follow up of the matter, the Directorate of Mineral and Coal Program Development held a meeting with APBI and attended by several company members on August 13.
The meeting chaired by M. Wafid, Director of the Minerba Program Development was the 4th meeting between the government and coal miners, in this case represented by APBI to discuss the implementation of the 2020 DMO policy amid the pandemic. APBI appreciates the initiative of DJMB in holding several virtual meetings to find the best formula so that domestic coal supply is not disrupted, but on the other hand the company is not burdened by the application of administrative fines (sanction). As is known, the Ministry of Energy and Mineral Resources in the Minister of EMR Decree Number: 261.K / 30 / MEM / 2019 stipulates monetary fines will be imposed for those do not meet their DMO supply obligations. The fine is planned to be regulated through a Minister of Finance Regulation (PMK) which is currently being discussed by the Ministry of Finance's Fiscal Policy Agency (BKF).
APBI as in the letter to the Minister of Energy and Mineral Resources emphasizes the commitment to support the fulfillment of coal supply into the country in accordance with the Minister of Energy and Mineral Resources Decree No: 261.K/30/MEM/2019. We also suggest that the government should review the amount of the percentage of supply obligations considering that the weak demand caused by Covid-19 pandemic would change the DMO percentage requirement. APBI in its internal study that domestic demand will range from 110 to 120 million tonne or far below the government's target of 155 million tonne. Therefore the percentage amount should also be lower than 25% as originally targeted by the government.
With regard to the penalty, APBI suggests that it should be reviewed and re-examined it should not be applied in 2020. APBI sees that producers will compete to supply to the domestic market because export demand has fallen significantly, so the government does not need to worry about scarcity of domestic supplies. On the other hand, the shrinking domestic market (due to weak domestic demand) also makes it difficult for companies to carry out their DMO obligations. Especially for companies whose coal quality cannot be absorbed by the user. Even for those with low calorie quality of coal, it is certainly very affected by the selling price which is already below the production cost. Therefore, according to APBI, the application of sanctions in 2020 will be less precise and will even more harm to companies.
The government, in this case the Ministry of Energy and Mineral Resources, has responded positively and reportedly will consider not treating these sanctions during the pandemic period. However, several details, such as the application of sanctions if coal prices move up to a certain level, are still under discussion. The Ministry of Finance also reportedly recommended that sanctions be implemented taking into account the movement of commodity prices amid the pandemic. So we hope that there will be positive news, for the industry perspective, from the possible relaxation on the DMO policy.