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Some Indonesian coal mining companies on Friday pledged to allocate a greater share of their production this year to meet domestic market obligations. Failure to comply may cost producers half of their output.

“Our company is aiming to supply 20 to 25 percent of domestic demand,” said Sandiaga Uno, director of PT Adaro Energy, the nation’s No. 2 producer. “We hope to supply at least 11 million tons to the market this year.”

The Energy Ministry decree, which went into effect on Jan. 1, requires coal miners to meet domestic demands before exporting their coal. The DMO would be based on projections of domestic needs three months in advance.

The initiative is aimed at securing adequate fuel for the nation’s ongoing fast-track electricity generation program. Producers in the past have been reluctant to reserve output for domestic use because coal fetches higher prices abroad.

Sanctions for not meeting the DMO vary from a written reprimand to a production cut of up to 50 percent for producers the following year. Buyers may also be punished if they fail to fulfill their purchasing commitments, with their orders in the next year being slashed by as much as half.

The government expects domestic demand of 75 million tons this year, while total coal production has been estimated at 280 tons.

The Indonesian Coal Producers Assocation (APBI), however, has insisted that the government’s demand forecast was too high and that the domestic market could not absorb that amount.

Sandiaga said Adaro would supply power plants in Java and Bali to meet its obligation. The company’s production rose to 40.59 million tons in 2009 from 38.48 million in 2008.

“Our company aims to be the biggest coal supplier for domestic demand,” Sandiaga said.

State-owned coal miner PT Tambang Batubara Bukit Asam said on Friday that it would allocate 8.6 million tons, or 61 percent of its total production this year, to the domestic market, up from 8.3 million tons last year.

Pri Agung Rakhmanto, an energy analyst at the Reforminer Institute, said the government should also issue a regulation pushing producers to reserve even more coal for the domestic market.

To make the obligation more palatable to miners, Pri suggested that the government raise the price it pays for coal to fall more in line with international prices.

“It’s still a better alternative than the government having to import from overseas with higher price” Pri said.

The National Energy Council, which advises the House of Representatives and the president, is currently considering a proposal to ban exports of coal, perhaps as soon as 2015, saying the nation would be able to absorb all coal production by that time.

Driving calls for the ban is the need for energy security amid diminishing coal reserves. Herman Darnel Ibrahim, a council member representing the mining industry, said the ban was needed because the nation’s remaining coal reserves were estimated to be sufficient for only 20 years.

But Energy Minister Darwin Zahedy Saleh, executive chairman of the council, said the ban would probably not be implemented as long as the country had a stable supply.

According to the Energy Ministry, Indonesia, Asia’s largest coal exporter, produced 254 million tons of coal in 2009, a 5.8 percent increase from 2008 and well ahead of the government’s 230 million ton target.

About 78 percent of the output was exported to buyers in Japan, China, India, Australia and Africa, with the rest sold domestically.

Bambang Setiawan, director general of coal, minerals and geothermal at the ministry, said coal exports in 2009 were worth $14.85 billion.