Indonesia, one of the world's largest coal producers, is facing recurring power outages, particularly across the Java-Bali grid, due to a severe coal supply crunch for its domestic power plants. This paradox stems from a $70 per ton price cap for coal supplied to domestic power plants under the Domestic Market Obligation (DMO) scheme, a policy unchanged since 2018. This fixed price is significantly lower than the international market, which saw Indonesia's benchmark coal price at $121.83 per ton in June 2026. This price disparity, exacerbated by a weaker rupiah, creates a strong financial incentive for mining companies to export their coal, leading to a shortfall in domestic supply.
State utility PLN projected a need for 154 million tons of coal in 2026 but had secured legally binding contracts for only about 134 million tons, leaving an 18 to 20 million ton gap. The cost of producing medium-calorific coal often exceeds the DMO price ceiling, making domestic sales unprofitable for many producers. Administrative delays in approving companies' Work Plan and Budget (RKAB) by the Ministry of Energy and Mineral Resources have compounded the problem, reducing the flexibility of domestic supply and creating uncertainty for mining companies. Despite abundant reserves of 31.96 billion tons, a structural mismatch exists, with increased output of low-calorific coal while most PLN power plants require medium-calorific grades.
The government has taken short-term measures, including an emergency shipment of 1.8 million tons in July 2026 and a special allocation of 3 million tons per month from August to December. In a major overhaul, PT Danantara Sumberdaya Indonesia (PT DSI) was made the sole coal export gateway starting June 1, 2026, to curb practices like under-invoicing and ensure DMO compliance. This transition will unfold in three phases, with full implementation by January 1, 2027, making PT DSI the exclusive export intermediary. This new system effectively shelved an earlier compensation scheme that aimed to bridge the price gap for domestic suppliers.
Analysts emphasize the need for long-term reforms beyond reactive fixes. Three key changes are proposed: overhauling the RKAB approval process to ensure timely planning, redesigning the DMO pricing formula to be dynamic and responsive to actual production costs, and addressing the structural mismatch in coal output. The International Energy Agency projects global coal demand to peak before 2026, suggesting that while international prices may eventually drop, Indonesia's energy security issues will persist without significant governance reforms in the upstream mining sector.
