With GMC currently constructing the Kupang smelter the costs of production are about to increase substantially. The most important input required for smelting is electricity/power and its cost controls the ultimate profitability of the project.
Huge problems are now arising between the Government and coal producers who have been forced to provide coal to PLN the electricity provider at prices now far below the market price. The market price has now broken above US$120/tonne and coal producers are being forced to supply PLN at US$70/tonne. Even at these levels PLN is losing money as the Government have forced them to provide cheap power. This cannot go on for much longer and everybody knows that it will only be until the next election in 2019 and then the prices will go up considerably.
"Keeping electricity prices low is particularly important ahead of presidential elections next year, which some argue is partly why the government in March introduced a cap of $70 per tonne on the price of coal sold to PLN, the state-owned utility company, for two years. " https://www.ft.com/content/0fd3ed3e-89b9-11e8-affd-da9960227309
To help cover the loses the Government is now planning to impose a levy on all exports.
"The Indonesian government had proposed to revoke the current coal domestic market obligation policy and instead apply a levy on exports, and a decision was expected to be taken Tuesday at a cabinet meeting." https://www.spglobal.com/platts/en/...-leaves-coal-dmo-domestic-price-cap-unchanged
Regulatory problems concern many investors and power providers as one said
“They don’t move the goalposts, they move the stadium! And change the sport!”
"The regulatory uncertainty caused by these regulations is likely harming the perception of the investment environment in Indonesia and the Government’s ability to develop much needed electricity infrastructure to support the country’s economic growth. It is imperative that the Government discuss draft regulations with the relevant stakeholders in a transparent manner before implementation to avoid damage to investor confidence and unworkable regulations." https://www.pwc.com/id/en/publications/assets/eumpublications/utilities/power-survey-2018.pdf
"While the price cap is positive for Indonesian power plants, local coal miners are very unhappy about the cap. After several years of low coal prices (which manage to kill plenty of smaller Indonesian coal miners), they finally saw their revenue and profit rising on the back of the strengthening coal price. However, under the DMO scheme they are forced to sell 25 percent of their coal output at home at rather uncompetitive prices, thus limiting their revenue and income." https://www.indonesia-investments.c...onesia-coal-price-cap-to-be-removed/item8918?
Most GMC investors do not realise the importance of power costs, it is the driving factor of a smelters profitability.
GMC Price at posting:
2.0¢ Sentiment: None Disclosure: Not Held
