By Fergus Jensen and Cindy Silviana

March 10, 2018 - Indonesia has capped the price of domestic coal for power stations at $70 per tonne for two years, in new rules issued this week, a government spokesman said on Friday.

The Southeast Asian nation is the world's biggest exporter of the dirty fuel and the rules could hit miners currently enjoying coal prices at their highest level in five years.

"The (maximum) price of coal ... for power stations is $70, fixed," energy ministry spokesman Agung Pribadi told reporters on Friday at a news conference on the step and other new rules.

That price is based on coal with a calorific value of 6,322 kilocalories, the same specification as in the Indonesian Coal Benchmark Price (HBA).

The rule will be applied retroactively to Jan. 1, 2018, and will be reviewed in December 2019.

Where the HBA drops below $70 per tonne, the domestic thermal coal price for power stations will revert to HBA, Pribadi said.

The monthly HBA was set last week at $101.86 per tonne for the month of March, its highest since May, 2012.

The new rule allows coal miners supplying PLN to apply for an increase to their approved production quota for the year of up to 10 percent.

Purchasing Power

"Energy and Mineral Resources Minister Ignasius Jonan emphasises this setting of coal prices for power stations is so that electricity rates can be maintained, to protect people's purchasing power and competitive industries," Pribadi said.

The rules are expected to generate savings of 18 trillion rupiah ($1.3 billion) for PLN if the HBA stays above $100 this year, PLN Strategic Procurement Director Supangkat Iwan Santoso told reporters.

Under the new rules, PLN, which uses coal with a calorific value of between 4,200 and 4,500 kcal, will pay around $37 per tonne for coal while the HBA remains above $70, Santoso said.

At the current HBA price, PLN pays around $55 per tonne, he added. PLN expects its coal demand to climb 18 percent this year to 90 million tonnes.

The government has been working on plans to regulate domestic coal prices since late 2017, under pressure from PLN, and the discussions have knocked back some coal miners' share prices.

Over the past three months, the Indonesian mining share index has gained more than 22 percent, outperforming all other asset classes, and is up around 33 percent over the past year. But, in the past five days, the sector has fallen over 6 percent - more than any other.

"We are still studying the impact (of the new rules). We want market prices," said Indonesia Coal Mining Association Executive Director Hendra Sinadia.

According to Suherman, corporate secretary for state-owned coal miner PT Bukit Asam, "the impact of the new price is not really significant on our target revenue and bottom line".

Adaro Energy, one of the biggest coal suppliers to PLN, will comply with the new rules, spokeswoman Febriati Nadira told Reuters by text message.

"Of course, setting this price will impact contributions to the state and coal reserves for national energy security," Nadira said, pointing to Adaro's tax and royalty payments totalling $774 million in 2017.

The government has said national coal output could reach 485 million tonnes in 2018, up from a realised output of 461 million tonnes in 2017. About a quarter of this - 118 million tonnes - is to be for domestic coal consumption, with the rest exported.

($1 = 13,783 rupiah)

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