Alternatives to the DMO. [Posted 3 Sep 2014, 239 views, 4 likes, 1 comment]

I hear that the Indonesian Mines Department has suspended this year’s Domestic Market Obligation (DMO) as Indonesian consumers have already committed to adequate contracts to meet this year’s coal needs. Perhaps there is also a growing concern that the expanding “trade” in DMO allocations was counter to the principal of the DMO. The inherent weakness of DMO’s is that domestic consumers are looking for preferred suppliers, and not part of the DMO’s system to take coal from all producers. The DMO was introduced at a time when coal prices were rapidly rising and domestic consumers were often out bid by more flexible foreign buyers. Indeed PLN went looking to open up its own mines. During the present period of low stable prices, PLN and the cement companies etc are winning with lower coal prices.

Clearly the DMO system was useful in the past, but perhaps a new structure is needed to support Indonesia’s energy domestic markets. Calls to significantly reduce coal exports may not be the best way forward for Indonesia, as limiting production will ultimately increase coal prices above international prices.

Any suggestions for alternatives to the present DMO ?