Coal prices, government policy, hit state utility

As coal prices continue to increase, state utility Perusahaan Listrik Negara faces problems in securing enough coal to meet power demands, a top executive said.

"We are in a dilemma now. The increasing price of coal is a real problem," PLN chairman Dahlan Iskan said on Thursday.

High coal prices, he said, will in turn force the company to bear high operating costs.

Prices at Australia's Newcastle port, a benchmark for Asia, rose 8 percent to $129.9 per metric ton as of Jan. 7, up from $119.47 per metric ton in December. The price of 6,322 cal/kg coal is $112.4 per metric ton, up from $103.4 per metric ton in December .

PLN has contracts with 53 suppliers to secure 55.8 million tons of coal to fuel its power plants, but Dahlan said it is at a crossroads with the rising prices.

Nur Pamudji, PLN's director of primary energy, said it would demand producers honor the coal price stated in an Energy Ministry decree.

"The decree says that the price of coal in 2011 depends on 2010's fourth-quarter average," Nur said.

The average price in December was $103.4 per metric ton, but the Indonesian Coal Mining Association (APBI) said coal companies had no choice but to increase their prices.

"International coal prices keep increasing, so we have to sell according to global prices," said the APBI's executive director, Supriatna Suhala.

Harsh winter weather and floods in Australia caused coal prices to rise, Supriatna said, adding that prices could reach $120 per metric ton this year.

Fabby Tumiwa, an energy analyst from the Institute of Essential Services Reform, said PLN should recalculate its operational costs "because the assumptions are totally different from the state budget."

PLN must raise electricity prices and demand more subsidies from the government, he said.

It will receive Rp 41.2 trillion ($4.6 billion) in electricity subsidies this year, down from Rp 55.1 trillion in 2010. "I think the government has to support PLN to keep it alive," he said.