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Coal Addiction
coal train
Saturday, 24 February, 2018 | 12:00 WIB
Coal Addiction

TEMPO.CO, Jakarta - The critical financial state of state-owned electricity producer PT PLN as a result of soaring coal prices is proof that the government has not been serious enough in overcoming its chronic electricity problem. Indonesia’s national electricity policy has led to our continued dependency on non-renewable energy sources. 

After failing at its first attempt last year, PLN has once again asked the government to intervene in the domestic coal price, which this year has soared to a record level of US$100 per ton. This is the highest it has been since 2012.

This increase has incited fear in PLN. Its power stations use around 66.9 million tons of coal per year. On top of this, there is the 16.5 tons used by independent power producers, which PLN depends on.

If the price of coal continues to rise, PLN is worried that there will be a repeat of the high electricity production costs of 2017, which totaled Rp15 trillion. Raise tariffs? This is not an option because it would be very unpopular, especially in the run-up to the 2019 elections.

As a result, PLN has had to swallow its pride. The directors have pledged to push their proposal of intervention in the domestic coal price, a measure they rejected three years ago when it was put forward by the coal producers. At the time, mining companies halted production because the price collapsed to around US$50 per ton.

In the last two weeks, the Energy and Mineral Resources Ministry has been discussing a regulation to set the domestic coal price. PLN has proposed US$55 to US$65 per ton. The coal producers have been involved in these discussions.

An umpire is needed to decide on this matter. The discussions must also be transparent. There must be no ‘under the table’ deal. This way, the policy agreed upon will benefit all sides, and will not cause problems for investors of the mining companies.

Conversely, coal producers should not oppose regulation. The allocation of coal for the domestic market is only 25 percent of their total production. The price proposed by PLN is higher than the production cost of approximately US$30 per ton. And as government contractors, they have enjoyed the benefits from coal owned by the state as their royalty payments have been relatively low.

The government should take advantage of this situation to re-evaluate its electricity policy that has turned coal into something like an addiction. Instead of looking for initiatives to increase the supply of electricity from renewable sources, the government has increased the number of coal-fired power stations.

For example, in the plan for an additional 35,000 megawatts of additional electricity capacity in 2019, half the power station products announced by President Joko Widodo are new coal-fired power stations. The Energy Ministry estimates that these new projects will increase PLN’s requirements for coal by up to 90 percent.

Now the government is re-examining the targets for operating these new power stations. The possibility of PLN defaulting as a result of these projects-revealed in a letter from Finance Minister Sri Mulyani in September 2017- shows that the ambitious program has not been planned properly.

Price fluctuations and the huge environmental impact of mining should make the government immediately abandon coal, which provides more than 53 percent of national energy needs. The same problem occurred when electricity production was still dependent on oil, until coal became dominant four years ago.

Read the full article in this week's edition of Tempo English Magazine

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