By Pritish Raj, Rituparna Nath, Suyash Pande and Anita Nugraha 

February 3, 2022 - Coal miners in Indonesia are likely to declare force majeure after the government banned exports in January to increase domestic supply as power plants grapple with critically low stock levels, market sources said.

While some miners are understood to have already declared force majeure, others are likely to follow suit, sources said, without divulging further details. Even cargoes already loaded till Dec. 31, 2021, are barred from sailing, sources said, adding this could likely lead to de facto force majeure of mines across the country.

The export ban has led to uncertainty in the market as supply to key consumers including China and India will be affected, given that deals already done are also subject to the ban.

The move comes at a time when coal stocks at domestic power plants of the world's biggest exporter of thermal coal fell to critically low levels, raising possible risk of disruption to power supply in the country.

As part of the Domestic Market Obligation, Indonesia's energy ministry has mandated producers to prioritize supply to state-owned PT Perusahaan Listrik Negara (Persero), or PLN. Under the DMO, coal miners must supply 25% of annual production to the domestic market, of which PLN takes the major portion.

Ridwan Jamaludin, director general of mineral and coal at the energy ministry, said if the export ban is not enforced, nearly 20 steam power plants with a power of around 10,850 MW will be impacted.

"This has the potential to disrupt the stability of the national economy," he said Jan. 1.

Reconsideration on Ban Possible

Market sources said there would be another meeting between the coal producers and the government on Jan. 5 to reconsider specific details of the ban.

An Indonesia-based producer said he expects the ban to be revoked for those producers that are able to meet the DMO by Jan. 5. Other said all mines will likely need to declare force majeure till the ban is revoked or something else is announced Jan. 5.

"From the 5.1 million mt assigned by the government until Jan. 1, 2022, only 35,000 mt or less than 1% has been fulfilled. This amount cannot meet the needs of each existing PLTU," Ridwan said.

Sources said the sudden demand from the government could disrupt supply fundamentals and lead to force majeures. "Their [PLN] consumption is only 7 million mt/month and suddenly they want 5 million mt. Realistically, some change should happen in one or two days," an Indonesia-based producer said.

"We have given notices to our buyers and other producers have canceled delivery for January. This is a force majeure situation because it is for now applying to everyone," the producer said.

Sellers prefer exporting coal as it gives immediate cash benefits to a miner whereas supplying to DMO leads to payments at a later date. Also, export prices are higher than what miners get under DMO, sources said.

Participants Seek Exemption

While some sources said coal specifications that do not match PLN requirements must be exempt from the export ban, miners said those producers who have met 75% of their domestic obligations should be allowed to export.

Ridwan said while the coal that is already on board and contracts that have been signed before are also subject to the ban, aspects with the buyers will be consulted later.

Indonesia exported about 300 million mt coal in 2021, with China, India, Japan and South Korea being the largest customers.

The ban could disrupt coal production of around 38 million-40 million mt, according to the Indonesian Coal Mining Association APBI. "As a result, the government has the potential to lose foreign exchange from coal exports of around $3 billion per month."

"They [buyers' ships] want to leave but there is no sailing permit," an Indonesia-based trader said. The traded added that discussions about Indonesian coal price were meaningless at the moment with the confusion around the supply ban.

The price of Indonesian 4,200 kcal/kg GAR averaged $67.70/mt FOB in 2021, up from $29.50/mt FOB in 2020, S&P Global Platts data showed. The price of 4,200 kcal/kg GAR was assessed at $63.45/mt FOB Dec. 31, according to Platts data.

Indonesia's annual production target for 2021 was set at 650 million mt, while its actual output stood at 611.42 million mt, according to Minerba One Data.

Earlier in August, Indonesia's federal energy ministry threatened to impose an export ban on 34 coal companies if they failed to meet their DMO, however, most companies came out of it quickly.