Indonesia introduces penalty rules for coal miners not meeting domestic supply target

Indonesia has decided to levy penalties on thermal coal miners that failed to meet their annual domestic market obligation, (DMO), in 2021, as well as impose several restrictions on exports, according to a decree issued by the energy ministry.

The decision comes weeks after the country relaxed the coal export ban for several companies that met their respective domestic supply requirement. The ban was imposed January. 1 after domestic stocks slipped to critically low levels, and was eased January 20 this year.

However, there were many miners who did not fulfill their domestic obligations, which requires them to supply 25% of their annual production to the local market.

The decree stated that the mining business permit may be revoked and operations may be temporarily suspended up to a period of 60 days for miners that fail to fulfill their domestic contracts. Moreover, there will be a prohibition on coal sales abroad. Other specifications of the fine will be decided by the Director General of Mineral and Coal, according to the document.

The permit shall be restored on fulfilling the DMO target and payment of a penalty, which is equivalent to the product of the foreign volume sold and difference of export price and the price at which coal is sold locally. The fine is likely to vary depending on how much of a deficit in domestic supply a miner has, sources said.

The three-week export ban has led to supply tightness in the spot market and a rise in prices, as miners are stuck with clearing January order backlogs. Miners often choose to postpone supplying to the local market and focus on spot sale due to lucrative export prices. To ensure higher DMO compliance, the government also suggested a monthly review of DMO data instead of annually earlier. This has pushed miners to set aside coal for local supply before offering spot cargoes for sale in the overseas market, further heightening the supply crunch amid sellers already dealing with order backlogs.

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