We Knew It Was Bound to Happen

Indonesia’s ban on coal export prompted importing countries including the Philippines to make and appeal. Photo c/o http://www.aljazeera.com

Last January 1, Indonesia suspended exports of coal after its state power utility announced dangerously low levels of the fuel among domestic power stations. Indonesia is the world’s largest coal exporter.

The ban on exports pushed coal prices higher in Australia and China. Indonesia’s move also prompted Asian governments like South Korea, China, and the Philippines to make an appeal to Indonesia to lift the export ban. Philippines Energy Secretary Alfonso Cusi asked the Department of Foreign Affairs (DFA) to intercede via the Association of Southeast Asian Nations (ASEAN) cooperation mechanism.

Our Energy Department’s appeal should not come as a surprise. After all, the Philippines remains heavily reliant on coal for power generation and procures most of its needs from Indonesia. Data shows that 70 percent of the Philippines coal supply for 2020 was imported. In 2021, the Philippines sourced roughly 2.4 million tonnes of coal monthly from Indonesia. 

Indonesia requires coal mining companies to fulfill their Domestic Market Obligation (DMO) where they need to sell 25 percent of their output locally before they can export. Indonesian authorities are blaming the coal supply problems on miners as they are failing to fulfill their DMOs.

On January 13, Indonesia announced that it would allow 37 vessels loaded with coal to depart, slightly easing the coal export ban. However, this doesn’t mean that the Philippines’ problem is over.  

A Citi research note released last January 5 estimated that roughly 490 out of 631 Indonesian coal miners met their DMO, representing 35 to 40 percent of Indonesia’s total coal production. If these companies fail to meet their DMOs then they won’t be allowed to export. There might not be enough supply for major coal importers like the Philippines, and coal prices are likely to surge if the ban continues. For the Philippines, this would result in power outages and higher rates.

I have been warning of this risk for many years now. At the start of the COVID-19 pandemic, I feared that Indonesia would close its ports, which means we cannot export coal. This would have put our power supply at risk. Thankfully, it didn’t happen then. But we all know that our power supply remains under threat as long as we continue our dependence on coal.

There are several ways we can mitigate this threat to our power supply. Our government should have long taken more aggressive measures in developing renewable energy resources. It should have ordered the immediate development of indigenous sources of power— wind, solar and geothermal. At this point, the government should act quickly and start by modifying power sales procurement rules. It must take draconian measures such as requiring distribution utilities to source a higher percentage of renewables.

The Energy Regulatory Commission (ERC) should mandate that all distribution utilities during the procurement stage testify that no indigenous resources within its franchise area or vicinity are available or there are no offers from any indigenous sources. Simply put, the ERC should order that utilities must negotiate or bid with renewable energy providers before purchasing from imported energy sources.

Likewise, we should take a look at how we interpret the constitutional provision on foreign ownership. Former Energy Secretary Atty. Raphael Lotilla in an Energy Forum last October stressed the importance of allowing more foreign investors to enable the Philippines to develop its renewable energy sources. He pointed out that the 40 percent cap on foreign ownership should only be applicable to finite sources as the constitution refers to “potential energy”. Solar and wind, which can be converted quickly to power should not be viewed as potential energy. These energy sources must not be subjected to the 40 percent foreign ownership rule.

Aside from Indonesia’s ban on coal exports, the Philippines is also facing the risk of higher prices of imports. Recently the International Monetary Fund (IMF) noted that emerging markets could be at risk when the US Federal Reserve increases interest rates earlier and faster than it had earlier planned. For the Philippines, this would mean elevated import costs for fuel and other raw materials. In the event, this occurs and Indonesia continues to ban coal exports, then we are doomed.

In the end, the best time to be more aggressive in developing renewable energy sources to ensure continuous supply was many years ago. Asking the Indonesian government to lift its ban on coal exports is a temporary measure as our best bet has always been to become less reliant on coal by developing and harnessing indigent power sources.