Wed, 05 Mar 2008
From: The Jakarta Post
By Sylvia Darmaji
As the number one thermal coal exporter in the world, Indonesia should not be facing a coal crisis.

Oil prices have been rising steadily for the last five years, from US$31 per barrel in 2003 to $102 per barrel today.

There has been a recent hike in oil prices rising 67 percent from $61 per barrel in early 2007 to a record high of $103 per barrel. This follows the weakening rupiah, winter in the northern hemisphere, strong oil demand and political instability in the Middle East.

The Energy Information Administration (EIA) is optimistic oil prices will start to ease from April until 2009 as America's economy is expected to slow down, winter ends and crude oil reserves increase.

The EIA is estimating an average West Texas Intermediate oil price of $87 per barrel this year and $82 per barrel in 2009.

Prices for oil substitutes, especially coal, are also increasing.

Newcastle coal prices have risen 45 percent in the past two months, from $91 per ton in January to $132 per ton today, and are expected to hover around this price.

In response, Indonesia has almost doubled production in the last five years from 113 million tons in 2003 to more than 210 million tons last year, with about 75 percent exported.

At this production level the country has become the largest thermal coal exporter in the world.

Ironically, recent reports suggest that PT PLN, the state electricity company, has been experiencing coal shortages in the Java-Bali area. This recently resulted in a 1,000MW power deficit with the company operating at 4.7 percent below capacity.

In response to the shortage, PLN cut off electricity supplies in a number of areas throughout Java and Bali. As the world's largest thermal coal exporter, Indonesia was ironically unable to secure coal supply for domestic use.

Bad weather and a lack of transportation were blamed for the incident. The wet season is inevitable and such problems should be anticipated.

The Transportation Ministry claimed there was no coordination between PLN and the relevant ministry to overcome the problem.

Surprisingly, some coal-generated power stations have less than a week of coal inventory, while normally they should have about two weeks or more of fuel stocks.

With minimal coal stocks on site, bad weather means the country's electricity supply is at stake. A long-term plan to have fuel-supplied power stations needs to be established if the company is to tackle the problem.

The country has one of the largest coal mining areas in the world with reserves available to supply PLN's coal needs for the next 30 years, even after accounting for the completion of the much needed 10,000MW power plant project.

If PLN had a long-term coal off-take contract, its coal problem would be solved.

Today's rising coal prices lead to coal companies exporting their products, making it harder for PLN to secure its supply if it has to buy it at market price.

PLN is the sole electricity company in Indonesia. As electricity is essential to the country's security and development, the government needs to support its sustainability.

It must create disincentives for those who waste electricity and give PLN the subsidies it needs so that the number one thermal coal exporter in the world does not face anymore electricity outages.

The writer is a reseacher at PT Bahana Securities



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