Sep

08

Coal Export Suspension

Why Did Indonesia Suspend Coal Exports for 34 Companies?

On August 7, 2021, the Director General of Mineral and Coal (Dirjen Minerba) of the Ministry of Energy and Mineral Resources (ESDM) sent a letter T-370/MB.05/DJB.B/2021 regarding “Prohibition of Coal Sales Overseas ” to the Director General of Foreign Trade, the Director General of Customs and Excise, and the Director General of Sea Transportation, stating that there are 34 coal supply companies that have not fulfilled their coal supply obligations in accordance with the sales contract with PT PLN (Persero) and/or PT PLN Batubara from the period of 1st January to 31st July, and they are subject to sanctions in the form of prohibiting the sale of coal to foreign countries (exports) until they meet the domestic coal needs in accordance with the sales contract. This provision was made in connection with the issuance of the Minister of Energy and Mineral Resources Decree No. 139.K/HK.02/MEM.B/2021 regarding the Fulfillment of Domestic Coal Needs (Kepmen ESDM 139 2021).

In the first Dictum of the Minister of Energy and Mineral Resources 139 2021, it is stated that the percentage of coal sales for domestic needs (domestic market obligation) to Mining Business Permit holders in the Coal Production Operation stage, Special Mining Business Permits in the Coal Production Operation stage, Coal Mining Concession Work Agreements in the Production Operation stage , and Special Mining Business Permits as Continuation of Contract/Agreement Operations (hereinafter referred to as permit holders) is 25% (twenty five percent) of the planned annual coal production amount approved by the government to meet coal needs for:

  1. supply of electricity for public and private interests; and
  2. raw material/fuel for industry.

In the fourth Dictum of the Ministerial Decree, if the permit holders do not meet the sales percentage as stated in the first Dictum or do not fulfill the sales contract, then the permit holders will be subject to sanctions prohibiting the sale of coal abroad until they meet their domestic coal needs, in accordance with the percentage of sales or in accordance with the sales contract, except for those who do not have a sales contract with domestic coal users or their coal specifications do not have a domestic market. Companies can face sanctions in the form of:

  1. A fine in the amount of the difference in the selling price abroad minus the Coal Benchmark Price for the supply of electricity for the public interest (domestic market obligation) multiplied by the volume of sales abroad in the amount of the obligation to meet domestic coal needs that are not met by permit holders who do not meet domestic coal needs for the supply of electricity for the public interest;
  2. A fine in the amount of the difference in the selling price abroad minus the Coal Benchmark Price multiplied by the volume of sales abroad in the amount of the obligation to fulfill domestic coal needs that are not met for license holders who do not meet domestic coal needs other than for the supply of electricity for the public interest; and
  3. Compensation fund in the amount of sales shortfall in accordance with the percentage of sales for license holders who do not have sales contracts with domestic coal users or whose coal specifications do not have a domestic market.

The failure to fulfill Domestic Market Obligation (DMO) by business actors is suspected to have occurred because they were more interested in the selling price of coal in the export market compared to the domestic market price. Every year, the Ministry of Energy and Mineral Resources issues regulations regarding the fulfillment of Domestic Coal Needs, but previously, the sanctions imposed were the obligation to pay fines and a reduction of production quotas. If the company does not comply with these regulations, it can be said that the company has not fulfilled their legal obligations and if the contract between the business actor and PT PLN contains an agreement that stipulates that the business actor must comply with the DMO, it can be said that the company has defaulted or broken their promise so PT PLN can file a lawsuit against the business actor. If there is news that a business actor is involved in a dispute or is being sanctioned for not carrying out their legal obligations, then, of course, this will have a negative impact on the company’s image, which will be difficult to restore.

The government’s move to secure the domestic coal supply is considered appropriate, so that there is no irony that coal exports are high even though domestic needs are not being met. To avoid export ban sanctions and fines contained in ESDM Ministerial Decree 139 2021, business actors must prioritize their obligations to fulfilling their supply in accordance with their sales contract with PT PLN. This policy of imposing sanctions can be seen as one of the government’s steps to ensure the availability of domestic energy supply needs, especially to survive in the midst of the COVID-19 pandemic, which requires a lot of energy supply. If you need assistance, consultation or assistance related to the business you are doing, contact us at info@schinderlawfirm.com.

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