Indonesia, the world's largest exporter of thermal coal, has recently attracted a lot of attention for the suspension of coal exports.
For now, the suspension of coal exports has only lasted 10 days, instead of the month previously announced, Indonesia's coordinating minister for maritime affairs and investment Luhut Binsar Pandjaitan 10 announced that the country will allow 14 ships carrying coal to set sail as long as the mining and transportation department is approved, and the coal export ban will be further relaxed.
The embargo comes from a statement issued by the Indonesian Ministry of Energy and Mineral Resources on December 31, 2021, which declared that from January 1, 2022 to January 31, 2022, Indonesia will ban the export of coal, including coal ships that are being shipped and have not yet been shipped, and all coal will be prioritized for domestic power plants and independent power producers to alleviate the shortage of electricity in Indonesia's domestic households.
At that time, many people were concerned about whether it would affect China, the largest buyer of Indonesian coal, according to statistics, China's coal import dependence was only about 10%, relatively low, China had increased domestic coal production when there was a shortage of electricity in October 2021, coupled with the shutdown of some factories around the Spring Festival, so Indonesia's ban on coal exports had little impact on the overall situation of China's coal use.
However, from the overall international level, this matter has aroused great concern in the global coal market and the uneasiness of the coal industry, which may push up global coal prices, after all, energy-scarce countries such as Japan, South Korea and the Philippines are still quite dependent on Indonesian coal. Japan, the world's third-largest coal importer, was the first to publicly protest indonesia's coal export ban and pressure it.
By January 6, the Indonesian government initially relaxed the ban on coal exports, saying that coal companies that complete more than 76% of their domestic supply obligations in 2021 can resume export qualifications on the same day, and coal companies with a completion ratio of 25%-75% need to continue to wait for further news.
On January 10, Indonesia's coal export ban was further relaxed. Affected by the news of the lifting of the ban, the global coal price has shown a downward trend for 3 consecutive trading days, falling by 6.61% in 3 days, which has relieved the international market.
Looking back, the world's top five coal-producing countries, the largest coal exporters, but their own faces a "shortage of electricity"? Co-author of another golden rice bowl asking for rice? This episode seems to have just been seen.
Then again, more than 70% of Indonesia's coal is used for export, even if you want to ensure domestic supply, will it not be necessary to restrict the proportion of export adjustment? Why all at once, do you have to seal the exports?
Because, if it is not "prohibited", it will not be able to stop Indonesian coal companies from "elbowing outward".
1
To understand the Indonesian coal account, we must first understand an important policy on the coal industry in Indonesia.
As mentioned earlier, Indonesia is the world's largest exporter of coal, exports account for about 75% of production, plays an important role in the global coal market, especially in the Asian market, the country's thermal coal exports mainly used for power plants have remained the first for several consecutive years, and a total of 360 million tons of coal was exported from January to October 2021, an increase of 9.34% year-on-year.
It is no coincidence that about 75% of Indonesia's coal production is exported, and it is not arbitrary.
Since 2010, the Indonesian government has implemented a domestic market obligation (DMO) policy for coal producers, setting an annual quota for domestic supply of coal in total coal production.
According to statistics, in 2013, this quota accounted for about 18% of Indonesia's total coal production, and it was planned to increase this proportion from 20% to 25% in the next five years; sure enough, in 2018, this quota reached 25%.
That is to say, since 2018, Indonesian coal production will use at least 25% of the output in China, which is basically comparable to the proportion of Indonesian coal exports. However, without the mandatory quota provisions of DMO, the proportion of Indonesian coal exports may be even higher.
Why? Because Indonesia's coal companies are really reluctant to "supply domestically". The DMO policy stipulates not only supply quotas, but also harsh pricing.
In 2018, the DMO stipulated that the unit price of Indonesian coal mining enterprises supplying to the domestic market should not exceed $70 per ton, which is much lower than the market price, and enterprises that do not comply with the regulations will be banned from exporting coal or fined.
These coal companies in Indonesia are not charitable, exports can buy high prices, supply domestic prices can only be sold at a price much lower than the market price, who would want to choose the latter?
For example, according to the Indonesian Ministry of Energy, in January 2022, the Benchmark Price (HBA) for Thermal Coal in Indonesia was $158.5/ton, more than twice the DMO limit.
Therefore, in the face of the huge internal and external price difference, except for a few large coal companies, most Indonesian coal companies even pay fines and are not willing to supply coal to the country.
According to the data of the meeting held by the Indonesian Ministry of Energy and Mineral Resources on January 4, as of October 2021, there are as many as 418 coal companies in Indonesia that have not completed DMO, of which 17 have a completion rate of between 25-49%, 25 have a completion rate of 50-75%, and 29 have a completion rate of 76-100%, which means that the vast majority of tasks have not even completed 1/4.
It is also an indisputable fact that the coal supply in PLN has been below 25% of the DMO's obligatory coal sales.
(The realization rate of Indonesia's coal domestic sales target has been very low)
The domestic coal quota stipulated by the DMO is mainly used for power generation. According to statistics, the power industry accounts for about 70% of Indonesia's total coal consumption. Indonesia's electricity supply has long been dominated by coal power, accounting for more than 80% of coal power in 2013; although in order to follow the general trend of energy conservation and emission reduction, the Indonesian government announced on May 27, 2021 that it will phase out its coal power and will only allow coal power projects under construction and financing to continue. However, according to Indonesia's power generation structure planning, during 2019-2028, Indonesia's coal demand will still account for a large share in the medium and long term, in order to ensure the stability of the overall energy supply in the process of new energy development, coal will still be the "ballast stone" of Indonesia's domestic energy stability during this period.
(Indonesia Power Generation Structure Planning 2019-2028)
So it's not hard to see why coal-rich Indonesia is worried about an "electricity crisis."
In fact, the DMO policy includes a coal quota that requires domestic coal companies to provide to power plants. For example, before the "export ban", the Indonesian government stipulated that the domestic designation must supply 5.1 million tons of coal to the power plant in order to "maintain the number of days of coal storage available for local power plants for 20 days". But as of January 1, 2022, only 35,000 tons have been delivered, with a completion rate of less than 1%, which is the background of the coal export ban - if you have to make money on the international market, I simply stopped exporting.
In fact, Indonesia actually planned to implement similar export restrictions in August and September last year, when the restriction target was 34 coal mining enterprises with a DMO completion rate of less than 75% from January to July 2021, but the final export restrictions did not land, and the coal companies continued to complete the normal export performance after paying the unfinished DMO compensation.
2
So, Indonesia forced coal mining companies to provide low-cost coal to power companies, although coal companies are unwilling, power companies always make money, right?
However, this is not the case, and Indonesian power companies also lose money.
Indonesia implements public control over the power industry, the feed-in tariff and sales price are dominated by the government, the electricity price is controlled by the state, and a unified national electricity sales price is formulated. But at present, the sales price of electricity in Indonesia is lower than the cost of electricity production.
The National Power Company of Indonesia (PLN) is the most important company in the Indonesian power industry. In the Indonesian electricity market three types of business entities - PLN, independent power generation companies (IPP) and private power utilities (PPU), IPP can only sell electricity to PLN, PPU is mainly responsible for the use of electricity in industrial areas, in fact, PLN is a dominant company, currently controls 70-80% of the country's installed power capacity and power generation end demand, for transmission, distribution and grid has absolute control.
Indonesia subsidizes all PCN losses caused by supplying electricity to consumers below cost with state finances, and the electricity subsidies are provided in the form of financial budgets (The Crow has not found evidence of subsidies to coal companies in Indonesia at present, and can be provided to the Crow if there is any informed reader). But even with subsidies, PLN is still at a loss and can't make ends meet, with estimates that PLN will need government financial subsidies of 137.6 trillion Indonesian rupiahs (about $8.9 billion) in 2021.
In the context of the DMO policy, coal companies and power companies are losing money, and the interests of the two sides are highly negatively correlated: the more low-cost coal provided to power companies, the more pressure on power companies is reduced, but coal companies lose more; conversely, coal companies prefer to violate the law rather than provide sufficient low-cost coal, and power companies have to purchase high-priced raw materials to further increase the cost of power generation.
Therefore, the two factions of coal and electricity have become two parties fighting with each other, and the import ban this time was quickly lifted, which is also the embodiment of the game between the two sides to a certain extent.
On the one hand, the power companies have monopolistic PLN, and the originally scattered coal companies have also embraced the group.
The export-oriented structure of Indonesian coal has given birth to the Indonesian Coal Mining Association (ICMA), an important organization in indonesia's coal industry.
Although the agency describes itself as a "non-governmental, non-profit and non-governmental organization," it includes 90 coal producers and 70 mining service companies, accounting for 80% of Indonesia's coal production. It can be said that in Indonesia, ICMA's opinion is the opinion of the entire coal industry.
As soon as the export ban came out, representatives of the coal company began to shout at the government one after another.
Arsjad Rasjid, chairman of the Indonesian Chamber of Commerce and Industry (Kadin) and president of Indika Energy, one of Indonesia's largest coal companies, said he supported the government's policy of securing domestic electricity supply, but did not endorse the government's unilateral hasty implementation of a comprehensive ban without discussions with relevant business participants, and hoped that the government would re-examine the export ban.
The Indonesian Coal and Energy Suppliers Association (Aspebindo) said that the "one-size-fits-all" ban on exports may not only trigger commercial disputes between Indonesian coal companies and international buyers, but also damage Indonesia's reputation as the world's coal supplier.
The Indonesian Coal Mining Association (APBI) said the ban could affect about 38 million to 40 million tons of coal production, and the government could lose about $3 billion a month in foreign exchange due to coal exports.
On the side of the power company with PLN as the main force, it is obviously the beneficiary of the coal export ban, and the so-called cheap is not good to sell well, and there is no more speech during the implementation of the ban. But in terms of the final result, they are by no means without effort.
Because although the export ban was lifted, through this ban, at least 7.5 million tons of coal in Indonesia's domestic coal market, which was mostly used for export, were diverted to domestic demand.
Even if it is calculated at 70% of coal domestic demand to supply electricity, this figure has exceeded the 5.1 million tons quota of directed power supply enterprises stipulated before the ban. And PLN, which has made a "compromise", began to be unforgiving at this time, requiring coal companies to meet the minimum supply limit of 20 days, the question is how much this supply limit is, how is a criterion, PLN has not made a statement.
They are clearly not losers.
3
This incident has a result, but the problem is still there.
According to Indonesia's domestic forecasts, in the next few years, PLN's demand for coal is still growing, which means that this contradiction between coal and electricity will only increase and will not be eliminated automatically.
(PRN is expected to consume more and more thermal coal.)
After all, the contracts between Indonesian coal companies and foreign companies are signed in advance, and if the policy is contracted in the future and the export ban may be introduced again, the losses caused by it will be put on whose head, and no one will be willing to do it.
According to incomplete statistics, more than 100 bulk carriers have been stranded near Kalimantan Port, Indonesia's main coal export port, with a total capacity of more than 6 million tons as of the lifting of the ban.
The number of Indonesian coal vessels leaving port in the same period since 2019 in the chart below can also clearly see how the Indonesian government's coal export ban has affected the country's coal exports.
Overseas buyers cannot sit idly by when the coal that was supposed to be exported is stranded at the port, and the coal producer, seller or shipper will be charged a demurrage fee ranging from $20,000 to $40,000 per day for coal producers, sellers or shippers based on the contract, and the liquidated damages incurred by the contract cannot be performed on time are also not small expenses.
So what about the future? The Indonesian government has come up with this plan:
They plan to close the huge price difference in coal and let PLN buy coal at market prices instead of the $70 per ton limit set by DMO;
At the same time, a cross-ministerial and agency public service agency (BLU) was established to collect a "coal tax" from Indonesian coal companies to subsidize PLN for "market-price coal purchases".
But this plan... Not only is the wool of coal enterprises still out of the sheep, the bigger problem is that the unified electricity price controlled by the government may no longer be stable, and the effect of the "marketization" of electricity charges is increased, which we seem to have just seen in a large country in Central Asia.
As for whether this will trigger a "color revolution" like Kazakhstan, it is not necessarily true, because Indonesia, a country, has long been "dyed" for an unknown number of times.
Resources:
Observer Network "10 Days After Stopping Coal Exports, Indonesia 'Loosens'"
Observer Network: "Indonesia's sudden ban on coal exports, will it have a big impact on China?" 》
"Indonesian Voices: Satisfying the Inner Cycle, The Government Wants to Cut the Coal Miners' "Leeks"? 》
"Indonesia is ready to lift the ban on coal exports? Backlog of more than 100 ships outside large export ports
"Indonesia's coal supply cut-off, is it reproducing "coal super crazy"? 》
"The Beginning and End of Indonesia's Coal Export Ban and Its Impact"
Daily Economic News: "Indonesia banned coal exports for 1 month, what happened?" How big is the impact on the biggest buyer, China? 》
Wang Chen: Development Trend of Indonesia's Coal Industry
"Indonesian government is expected to ease coal export ban"
Shi Wengang: Analysis of Indonesia's Power Generation Market under the Impact of COVID-19
Global Times: "Indonesia lifts coal export ban, market breathes a sigh of relief"
Status and Development of Indonesia's Energy Industry
Energy Magazine: Indonesia's Coal Power Shortage Highlights The Dilemma of Energy Transition
Haiyi Report: 2020 Indonesia Power Industry Development Report