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Domestic Coal Market Obligation and Temporary Export Ban

Domestic Market Obligation (DMO) of coal is the obligation of Business Entities to submit part of its share of coal production to the state through the Implementing Body in the context of supplying coal to meet domestic needs, the amount of which is regulated in the Cooperation Contract. This DMO regulation is essential to control the amount of coal sales domestically so that the government can ensure the sufficient availability of national energy. Previously, the government set the amount of coal DMO as high as 25 per cent of each producer’s planned annual coal production, but recently, there have been talks that there will be change in the system and will be evaluated monthly.

The policy of changing the DMO comes from the lack of domestic coal supply for the current electricity needs of PT PLN Steam Power Plants and Independent Power Producer. The Ministry of Energy and Mineral Resources noted that the lack of coal supply would affect more than 10 million PLN customers, ranging from the general public to industry, in Java, Madura, Bali (Jamali) and non-Jamali areas.

Of the 5.1 million metric tons of coal assigned by the government, as of January 1, 2022, only 35 thousand MT, or less than one per cent, has been fulfilled, leaving PLN’s power plants with a coal supply deficit.

Due to this situation, the Ministry of Energy and Mineral Resources through the Directorate General of Mineral and Coal issued a letter No. B-1605/MB.05/DJB.B/2021 dated December 31, 2021 regarding the Fulfilment of Coal Needs for General Electricity and letter No. B-1611/MB.05/DJB.B/2021 dated December 31, 2021 regarding the Prohibition of Selling Coal to Overseas, temporarily prohibiting coal mining companies, both holders of a Mining Business License (Izin Usaha Pertambangan / IUP), Special Mining Business License (Izin Usaha Pertambangan Khusus / IUPK) and Coal Mining Concession Work Agreement (Perjanjian Karya Pengusahaan Pertambangan Batubara / CCoW / PKP2B) from carrying out coal export activities from January 1, 2022 to January 31, 2022.

Along with the prohibition, companies holding the work agreements and business permits listed above are also obliged to supply all of their coal production to meet electricity needs for the public interest following their obligations to fulfill domestic needs and/or assignments from the government to companies and/or contracts with PT PLN (Persero) and Independent Power Producer (IPP).

Since there are many contradictions regarding export ban and following up on the result of joint-meeting coordination between Ministers, the Directorate General of Mineral and Coal issued a letter No. B-165/MB.05/DJB.B/2022 dated January 13, 2022 regarding the Revocation of Coal Export Ban which sanctions of coal export ban of 18 vessels that have already been fully loaded with coal from CCoW and IUP OP holder who have fulfilled DMO 2021 of 100% or more is revoked.

Although there have been talks regarding the change to the DMO evaluation method, the official regulation has yet to be announced. Right now, companies are encouraged to supply their coal production domestically and companies are highly encouraged to fulfil their DMO regardless of the evaluation method in the future because there will be consequences and sanctions if it is not complied with. If you need help or consultation, feel free to drop us an email at info@schinderlawfirm.com.

Author: Dewi Susanti