Economist welcomes governments benchmark price of coal

Jakarta (ANTARA News) - In an effort to protect state-owned electricity company PLN from being affected by the increase in coal price, the government has set a benchmark price of the commodity for PLNs domestic coal-fired power generators.

The price of coal continues to increase over the past several months as demand from Asian countries, such as China, India, and Vietnam, is on the rise. The price is now about US$100 per ton.

Based on the Energy and Mineral Resources (ESDM) Ministerial Decree No. 1320 K/32/MEM/2018, the benchmark price of coal (HBA) for March 2018 is set at $101.86 per ton. However, for PLN, especially for its power plants which are expected to provide electricity for the community, the price of coal (HBA for PLN) is set at about $70 per ton.

This is to help PLN maintain its electricity tariffs in order to protect the purchasing power of people and competitive industries.

Energy economics observer from the University of Gajah Mada (UGM), Fahmy Radhi, considers the governments decision to set the selling price of coal for domestic power plants at $70 per ton as quite realistic.

"The coal price of $70 per ton is beneficial to both parties, namely PT PLN and coal businessmen," he remarked in Jakarta on Friday. The positive impact of coal price fixed at $70 per ton is that the people are not burdened by electricity tariffs until 2019.

According to Radhi, with coal production cost currently at around $35 per ton, coal businessmen still reap a profit of up to 100 percent at the selling price of $70 per ton.

"As for PLN, the purchase price of $70 per ton can still cover the cost of electricity production, and so there is no need to raise electricity tariffs that will burden the people as consumers," he revealed.

Moreover, the coal volume reserved for the power plant is only 25 percent of the total production. The remaining 75 percent of national coal production is for export at market prices.

"It means that the decision to set the selling price at $70 per ton of coal will not harm the coal businessman," he reiterated.

Radhi appreciated the Minister of Energy and Mineral Resources, Ignatius Jonan, for the best decision of setting the coal price for coal-fired power plants at $70 per ton.

"It is not easy to decide the price of equilibrium that does not harm both parties," he added.

Jonan on Friday signed a Decree of the Minister of Energy and Mineral Resources No. 1395K / 30 / MEM / 2018 on Coal Prices for Electricity Supply for Public Interest.

According to the new policy, the government has set the price of coal for domestic coal-fired power plants at $70 per ton. The $70 coal price is retroactive from Jan 1, 2018, to Dec 31, 2019. This means that the sales contracts that have been going on since Jan 1, 2018, will be adjusted.

The government has set the maximum volume of coal at a selling price of $70 for 100 million tons per year. The governments decision was taken so that the electricity tariffs do not increase so as to maintain the purchasing power of society and industry.

Under the new ministerial decision, the benchmark coal price (HBA) of the type having a calorific value 6,322 GAR for electricity is $70 per ton. The selling price of coal to be paid by coal-fired power plant (PLTU), therefore, is US$70 per ton when the coal market price is higher than the HBA.

"When the coal market price is below the HBA, the selling price for PLTUs will be the lowest level," ESDM spokesman Agung Pribadi said. The price of coal having other calorific value will be converted to the price of the type with a calorific value of 6.322 GAR, Pribadi said.

The price as set in Ministers Decree No. 1395K/30/MEM/2018 on the Sale Price of Coal for the public interest is effective until 2019. "This decision will be effective until 2019 and specifically valid for state-owned power company PLN for peoples electricity procurement," Agung Pribadi.

ESDM Minister Ignatius Jonan confirmed that the coal sale price for steam power plants has been set, so that electricity tariffs are maintained, in order to protect the purchasing power of people and competitive industries.

A company that sells coal for national electricity may be given additional production of 10 per cent, if it meets the requirements in accordance with applicable regulations. Such pricing ($70 per ton) applies only to national electricity sales. The price of coal for use outside the interest mentioned above will still refer to HBA as regulated in the decree No. 1320 K/32/MEM/2018 ($101.86 per ton).

In the meantime, the government through Ministerial Decree No. 1320 K/32/MEM/2018, the has raised coal reference price (HBA) by 1.16 percent to $101.86 per ton in March from $100.69 per ton in February, according to data from the Energy and Mineral Resources Ministry.

Based on the result of data analysis, the coal price hike was fueled by high demand from other Asian countries.

Coal reference prices showed an upward trend in March 2018. "Demand from China, India and Vietnam continues to increase. The increasing activities of coal-fired power plants in China is one of the causes of increasing consumption," Agung Pribadi said.

He said the increase in the coal reference price is also the result of high rainfall. "Coal production is not maximum because of high rainfalls in several parts of the country. Minor disruption may affect coal production," he said.

Coal reference price is obtained from the average Indonesia Coal Index (ICI) Newcastle Export Index (NEX), Globalcoal Newcastle Index (GCNC), and Platss 5900 a month earlier.

Source: ANTARA News

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