Improving Coal Trading System

Coal supplies for state electricity company PLN have been disrupted again. This disturbance has led to potential blackouts in Java, Madura and Bali.

Coal supplies in some steam power plants (PLTU) have decreased quite sharply. Normally, coal supplies are sufficient to support a power plant’s operation for 15 to 21 days. However, currently, coal supplies at some PLTUs are only able to support operation for less than seven days.

PLTU Suralaya 1-7 and PLTU Paiton 1-2 and 9, which have been the major power plants in Java and Bali, have only enough coal to support operations for less than five days (25/1/2021). On the other hand, privately owned PLTUs, such as Tanjung Jati B 1-2, Tanjung Jati B 3-4, Paiton PEC and PLTU Jawa Power, are actually safe given the fact their coal supplies can support operation for more than 15 days. The coal supplies at Tanjung Jati B 1-2 can even support operation for 38 days.

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Rumors and growing public anxiety over power blackouts (in some regions) have prompted the director general of electricity at the Energy and Mineral Resources Ministry to hold a media briefing to explain various options for preventing blackouts. In the midst of various government efforts to restore economic growth during the pandemic, reliable electricity is an urgent need for business actors.

Floods in a number of regions, such as in South Kalimantan, and the recent extreme weather, are suspected to have disrupted the smooth supply of coal to various PLTUs, including to PLN. However, simply blaming the disaster, let alone blaming the impact of weather, does not solve the problem. The government should also pay attention to another factor that is even more important, namely the domestic coal trading system.

Sufficient coal volume

PLN\'s decision to go through with de-rating (reducing the capacity of power plants to generate electricity) because of the continuing depletion of coal supplies is certainly not to blame, because it aims to prevent blackouts. In fact, PLN developed a de-rating scenario of 2,752 megawatts (MW) until Jan. 29 and 2,467 MW starting Jan. 30. However, with the de-rating policy, PLN must increase the power supply from non-coal PLTUs, namely gas-fired and diesel-fired power plants. As a result, PLN has to increase its budget for the hike in the cost of producing electricity.

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Indonesia\'s total coal production in 2021 has been set at 550 million tons. Of the total national production, 351.4 million tons, or nearly 64 percent, were allocated to companies under the authority of the central government. The rest, 198.6 million tons, is for companies under the authority of the regional government.

HUMAS PLN

Illustration of a PLTU operated by PLN.

In 2020, in the midst of a pandemic that is still seeing increases cases, domestic coal utilization only stood at 132 million tons, or 85 percent. In fact, the government, through its domestic market obligation (DMO) policy, allocated 137.5 million tons. The total DMO needs have taken into account all the needs of PLN or other coal user industries.

Based on PLN’s coal consumption (RUPTL 2019-2028), in 2028 PLN will need 153 million tons of coal. Combined with industrial needs and coal utilization for downstream industry, the total coal demand is projected to be 250 million tons. With coal production to be set by the government at 600 million tons, it can be ascertained that over the next 10 years, domestic coal demand at maximum will be 40 percent of the total national coal production. This means, considering the volume of coal output, domestic needs are to be met. There is no reason for anyone to say that coal volume is the main cause of disruption in domestic coal supplies, especially PLN.

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Moreover, the guarantee of coal supplies does not come only from the coal production target set by the government. In terms of current coal reserves, it is also more than sufficient. Of the total reserves of 37.6 billion tons and production of 600 million tons per year, it is confirmed that by 2040 around 24.8 billion tons of coal reserves will still be available. Not to mention the addition of coal reserves from exploration activities that have been carried out to date. It is very ironic, in the midst of large national reserves and production that far exceed domestic demand, there is a shortage of supplies for PLN.

The weather problem should have been better considered as a factor in designing PLN\'s coal trading system.

Considering that the country’s coal reserves are mostly located in Kalimantan and Sumatra and that most of the coal power plants are in Java, the weather problem should have been better considered as a factor in designing PLN\'s coal trading system.

Coal trading system

Currently, PLN\'s coal needs are supplied by several companies, including those under Coal Mining Concession Work Agreements (PKP2B) and Mining Business Permits (IUP), as well as traders, including PT PLN Batubara (PLNBB) as a PLN subsidiary created to support PLN\'s needs on an ongoing basis. By having more than one coal supplier for each PLTU, it is hoped that it will be able to guarantee the reliability of coal supplies.

Extreme weather conditions and an improvement in the international coal price index have disrupted PLN\'s efforts to manage coal supplies. Likewise, rough sea conditions during January and expected until February, have slowed down coal transportation.

The international coal price index reached US$72.31 on Dec. 4, 2020, and was at the level of US$87.54 per ton towards the end of January 2021. The commitment of some suppliers has become low, especially owners of short-term contracts, who tended to switch to export markets that were more promising in terms of price.

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Several coal mines in South Kalimantan have had to operate despite their coal mining sites (pits) being flooded. In the fourth week of December 2020, PLN\'s demand for coal was quite high, PLN must take various measures so that the depletion of coal stocks does not cause blackouts, including requesting support from the director general of mineral and coal at the energy ministry.

The coal mining sites, which are located across the country, and the changing weather are certainly not the cause entirely. The coal trading system must be improved so that disruptions to the domestic coal supply are not repeated. This is not only the job of PLN. The government, particularly the Energy and Mineral Resources Ministry, must also be involved in reforming the coal trading system for the benefit of domestic supplies.

KOMPAS/SAIFUL RIJAL YUNUS

Coal storage in the PLTU area owned by PT Obsidian Stainless Steel, in Motui, Konawe Utara, Southeast Sulawesi, Sunday (6/9/2020).

Among the steps that must be taken immediately are, first, coal stockpile capacity must not be calculated based only on financial efficiency. Coal supplies to support power plant operation should be the result of a technical evaluation involving various matters related to the supplier\'s mine, such as the scale of the mining company, the size of the production, the condition of the pit, the capacity of the coal processing plant (CPP), the loading speed and the time of shipment to the coal power plant.

Second, PLN must evaluate suppliers through routine technical audits to map mining conditions, supply conditions and export contract conditions. This effort is made for the benefit of PLN in mapping the safety and reliability of coal supplies to PLN in the next three months.

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Third, to maintain the reliability of the national coal supplies, the government must immediately prepare a blueprint for the construction of coal blending facilities, located in South Sumatra and South Kalimantan, which are closer to Java Island. With these facilities, the government can strengthen the supply of coal of various mine scales and of various qualities, so that it can be blended in advance to suit PLN\'s needs.

This is because, so far, the inability of several companies to comply with regulations regarding the sale of coal for domestic interests (DMO) is not only the result of the company\'s fault. Royalties can also be realized in-kind, not limited to cash as it is so far.

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Singgih Widagdo

Finally, by improving the coal trading system, both in terms of contracts and infrastructure facilities, the government will be able to strengthen the reliability of the domestic coal supply, which is very much needed to restore future economic growth.

Singgih Widagdo, Head of Public Policy for the Indonesian Geologists Association (IAGI)

This article was translated by Kurniawan Siswoko.