To prevent illegal coal trading due to the introduction of the proposed domestic market obligation (DMO) policy, producers have urged the government to introduce a market-based pricing system.
Indonesian Mining Society chairman Herman Afif Kusumo told The Jakarta Post on Monday the implementation of the DMO policy might tempt producers and traders to seek further gains from foreign markets through illegal trade measures such as price fixing.
Herman said setting up a market-based pricing system domestically would address the huge disparity between local and international coal prices.
The domestic coal price currently averages around US$20 per ton under existing contracts between producers, industries and the government, while the international price hit the $90 mark last week.
The government has been weighing up whether to implement the DMO policy on coal, under which producers would be obliged to allocate a certain percentage of the coal they produce for local consumption.
"I hope the government will be able to do something to raise the local coal price. With an appropriate price, I believe this policy could run well," Herman said.
This year, the country expects to produce up to 234 million tons of coal. Last year, the country produced 203 million tons of coal, exporting about 170 million tons.
The domestic demand for coal is expected to rise significantly during the next two years as state-owned power company PLN starts to operate several new power plants. PLN's demand for coal is expected to soar to 70 million tons annually as of the end of 2009, from a current 30 million tons per year.
The demand for coal in the industrial sector is also expected to increase, with many companies switching to coal as an energy source due to the increasing price of oil and gas.
The price of coal in the international market has doubled during the last five years. Recently the international coal price reached a record high of $91 per ton.
The director of mineral, coal and geothermal energy at the Energy and Mineral Resources Ministry (ESDM), M. S. Marpaung, said coal-using industries would be asked to inform the government of their annual coal needs before the DMO policy was introduced.
Indonesian Coal Mining Association chairman Jeffrey Mulyono told the Post he would support the plan if the government also introduced a quota mechanism based on market prices. Under such a lan, coal producers who still wanted to export the commodity would be permitted to buy coal from other local coal producers in order to meet their DMO quota.
He said the plan would not only secure the supply of coal domestically but would also protect the interests of coal producers.
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