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The World Bank has urged Indonesia to drop a policy forcing miners to supply a set amount of subsidised coal to its state power company, which it said has encouraged the use of the dirty fuel in electricity generation.

The recommendation is part of a report released on Thursday intended to encourage more private investment in renewable energy in Indonesia to help the country achieve a target of becoming carbon neutral by 2060 or sooner

The Southeast Asian country is the biggest exporter of thermal coal globally and among the top ten greenhouse gas emitters.

Indonesia has a so-called Domestic Market Obligation (DMO) policy whereby coal miners must supply 25% of annual production to state utility Perusahaan Listrik Negara (PLN), at a maximum price of $70 per tonne, well below current market prices.

The policy has effectively subsidised coal-fired power plants, the bank said.

[Gayatri Suroyo and Fransiska Nangoy]

More: World Bank recommends Indonesia cut coal subsidies amid green transition

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