The domestic market obligation: 25% and the price cap

Every coal producer in Indonesia has to sell part of its output at home. The energy minister sets the minimum share each year, and for years it has been 25% of each producer’s planned production. Coal sold to power plants that supply the public grid is capped at USD 70 per tonne.

This is the domestic market obligation (DMO). For an investor it means part of a mine’s sales goes to domestic buyers on the government’s terms, much of it at a capped price, whatever the export market pays.

How the obligation works

The Mining Law lets the government put domestic needs ahead of exports, and the energy ministry turns that into a yearly obligation. Every producer, whether it holds a mining business licence (IUP), a special mining business licence (IUPK) or one of the remaining coal contracts of work (PKP2B), has to sell at least the set share of the output approved in its work plan and budget (Rencana Kerja dan Anggaran Biaya, RKAB) to buyers in Indonesia.

The largest buyer is the state electricity company PLN, together with the independent power producers that sell power to it. Cement plants, fertiliser makers, smelters and other industries buy the rest. The ministry doesn’t leave PLN’s supply to the market. It assigns volumes to named producers. For 2026 it assigned 212 million tonnes to companies with an approved RKAB, to cover PLN’s need of 154 million tonnes. By May 2026, contracts for 144 million tonnes had been signed, according to the director general of minerals and coal.

In practice domestic sales can run above the minimum. In 2025 Indonesia produced 790 million tonnes, exported 514 million and sold 254 million at home, about 32%, according to the energy minister.

The share in 2026

The minimum is a share of planned output, so it moves with the production plan. For 2026 the ministry cut the national plan to about 600 million tonnes, with deep cuts for many IUP holders. In January 2026 the minister said 25% of that wouldn’t cover domestic needs and that the share would rise. No new figure was set then, and the ministry said it was still under study.

So don’t assume 25%. Ask for the decree that sets the obligation for the current year, and for the volume the ministry assigned to the company you’re looking at.

The price cap

Since 2018, coal sold for public power generation has been capped at USD 70 per tonne. The cap is set for a reference coal of 6,322 kcal/kg on a gross as-received basis (GAR) and adjusted for other qualities. It’s a ceiling, so it only bites when market prices are higher. How the coal reference price (Harga Batubara Acuan, HBA) and the market indexes work is covered in coal pricing.

Cement and fertiliser makers buy under a separate capped price. Check the current figure, and which buyers qualify, in the ministry’s decree.

The cap hasn’t moved with costs. In June 2026 the minister said he would review the DMO price, after producers complained that it hadn’t kept up with rising mining costs. Medium-calorie coal of around 5,200 kcal/kg, the grade many power plants burn, was also getting harder to find. Check whether a new price has been set since.

Sanctions and the 2022 export ban

A producer that falls short of its share can be barred from exporting until it makes up the gap, and can be made to pay fines or compensation on the missing tonnes. The record stays with the company, so if you buy its shares, you inherit any shortfall the seller left behind.

The government has gone further than that. On the last day of 2021, with coal stocks at PLN’s power plants running low, it banned all coal exports for January 2022. It began lifting the ban in stages within two weeks, starting with producers that had met their obligation. The episode showed that export sales can stop at short notice when power plants run short of coal.

What the DMO does to a mine’s price

A mine that sells a quarter of its coal at a capped price and the rest abroad earns a blend of the two prices. If the capped price for its grade is well below what the same coal fetches abroad, every domestic tonne pulls the average down. When world prices fall towards the cap, the gap narrows and the obligation costs less.

Quality matters too. Power plants are built to burn particular grades, so a mine whose coal suits PLN’s plants finds it easier to place its domestic share. A mine whose coal doesn’t may fall short and pay compensation instead, which lowers its average price in a different way. Royalty and taxes come off both kinds of sale, as royalties and taxes on coal explains.

Before you sign

• Ask for the company’s DMO record for the past three years: tonnes sold at home, buyers, prices and any letters from the ministry about shortfalls.
• Find out whether it paid fines or compensation, or had exports blocked.
• Check that its coal’s calorific value, ash, sulphur and moisture suit the plants it sells to.
• Read the domestic supply contracts: tonnes, price formula, penalties and term.
• Model the average price with the domestic share at 25% and at a higher share, using the capped price for the mine’s grade.

The DMO record is one part of the wider checks in due diligence on a coal concession.