Indonesia Maintains Coal DMO Price at $70/ton Since 2018: Ministry Reveals Rationale

Strategic Energy Subsidy Management

The Indonesian Ministry of Finance has disclosed the reasoning behind maintaining the domestic market obligation (DMO) coal price at $70 per ton since 2018. According to Robert, Senior Policy Analyst at the Ministry, this pricing strategy was implemented to prevent a significant increase in energy subsidy expenditures.

Economic Implications of Market-Based Pricing

The ministry conducted simulations for 2024 which revealed that if the DMO coal price was market-based rather than fixed, electricity subsidy costs could rise by Rp 22 trillion annually. This substantial potential increase is primarily due to the higher cost of electricity generation when using market-priced coal. The fixed DMO price helps maintain stability in electricity pricing for consumers and controls the government's subsidy burden.

Balancing Energy Affordability and Fiscal Management

By maintaining the DMO coal price at $70 per ton, the government achieves a balance between ensuring energy affordability for consumers and managing fiscal expenditures on subsidies. This decision reflects the complex interplay between energy pricing, subsidy policies, and overall economic management in Indonesia.