Indonesia raises power sector's 2023 coal requirements to 161.15 mil mt

The Indonesian government requested thermal coal miners to supply 161.15 million mt to the country's power producers in 2023, a stark jump from the demand projected for this year, which will likely keep supplies tight, according to a letter to miners seen by S&P Global Commodity Insights Nov. 7.

Of the total requirement for 2023, around half was estimated to be consumed by state-owned PT Perusahaan Listrik Negara, or PLN, at 81 million mt, while the rest was expected to be used by independent power producers, market sources aware of the development said.

Indonesia's ministry of energy and mineral resources prepared a list of 125 miners and each of their specific requirements had been categorically noted, ranging from volumes to coal grades and to whom to supply to, the letter showed.

A PLN source confirmed the data but the ministry of energy and mineral resources has yet to respond to S&P Global's queries.

"In connection with the obligation to meet the needs of coal in the country by the holder of the Coal Mining Concession Work Agreement (PKP2B), Mining Business Permit and Special Mining Business Permit stage Coal commodity production operations, we hereby convey the data needs each PLTU in 2023 that must be fulfilled by your company, and for inclusion in the marketing plan and DMO (domestic market obligation) on the e-RKAB application," the letter showed.

Industry sources said these projections were based on the discussions between the ministry, PLN, independent power producers and miners, which will allow these stakeholders to plan for the coming year. "We have received the letter from the government, now we will work on our internal budgets and plan for the coming year," an Indonesia-based miner said.

A producer said: "The projection already shows a huge surge in domestic demand from the power sector so I expect that supply will again be tight."

At the start of 2022, coal demand from the power sector was projected at 127 million mt for the year, while PLN's demand was initially projected at 64 million mt. However, PLN requested for an additional 5.4 million mt and 2.2 million mt of thermal coal from the ministry in July and August, respectively. This marked a yearly increase in coal demand projection of 26.7% from Indonesia's power sector.

"This is not consumption by the PLN or the power sector but also an indication that they want to increase supply," another Indonesia-based producer said.

Higher projection fueled by demand expectations

Market sources said the projection was in line with Indonesia's rising domestic demand for coal-fired power. Producers also expected an increase in demand from the nickel smelter industry and the cement sector.

Coal demand from the domestic cement sector was projected at around 16 million mt and around 35 million mt from smelters in 2022, according to sources.

"It is mostly a requirement for low-CV miners. Most of the large low-CV miners are increasing production next year. Some of the big miners are cumulatively expected to add close to 30 million mt," an Indonesian miner said.

Thermal coal miners in Indonesia need to comply with rules of domestic market obligation, under which they must supply 25% of their production for domestic consumption. The miners also must supply to PLN, cement and fertilizer industries in accordance with the price cap set by the government. The price caps are set using the country's HBA index.

Global thermal coal prices remained elevated following the start of the Russia-Ukraine war mainly due to the additional demand from Europe, which imposed sanctions on Russian fuel.

Platts assessed Kalimantan 4,200 kcal/kg GAR coal at $90.50/mt FOB Nov. 7; averaging $86.50/mt FOB so far in 2022 compared with an average of $67.05/mt in the same 2021 period, S&P Global data showed.