Policy

DMO and royalties explained

Two government levers, the Domestic Market Obligation and the royalty regime, decide how much of a miner's revenue stays with the miner. How each one works.

Reference · 6 min read

A miner’s revenue is not simply tons multiplied by the world price. Two government levers sit in between. The Domestic Market Obligation (DMO) dictates where some of the coal must be sold and at what price, and the royalty regime takes a cut of what is sold. Together they decide how much of the headline benchmark actually reaches the company.

DMO: a slice sold at home, capped

The Domestic Market Obligation requires coal producers to sell a set portion of their output to the domestic market, chiefly the state power utility, rather than exporting all of it. The catch is the price: coal sold into domestic power generation is capped well below the export benchmark.

DMO mechanics

Realised price = (export share x export price) + (DMO share x capped price)

Export share: tons sold abroad at or near the benchmark
DMO share: tons that must be sold domestically
Capped price: the fixed ceiling for power-station coal

The wider the gap between the export benchmark and the DMO cap, the more the obligation drags on a miner's average realised price.

When the export benchmark is low, the DMO cap is barely below it and the obligation costs little. When the benchmark runs high, the gap widens and every DMO ton is revenue left on the table. That is why a high benchmark is not pure upside for a producer with a large domestic obligation.

Royalties: the state’s share of each ton

On top of the DMO, the government takes a royalty, a percentage levied on a price derived from the benchmark. The rate is not flat: it typically steps up as the reference price rises, and it can vary with the producer’s permit type and the coal’s quality.

Step 1
Benchmark is published
The HBA reference price sets the basis for the royalty calculation.
Step 2
Rate is applied
A percentage, often tiered by price band and permit, is struck against that basis.
Step 3
Royalty is paid to the state
The amount owed rises with the benchmark, taking a larger bite as prices climb.

Because the rate rises with the price, royalties are progressive: a higher benchmark lifts revenue but also lifts the share owed to the state, so the miner keeps less of each incremental dollar than the headline move suggests.

Reading the two together

DMO and royalties pull in the same direction when prices are high: the DMO diverts tons to a capped domestic price while the royalty rate steps up on the rest. To judge a miner’s true exposure to the benchmark, start from the published price, subtract the royalty, and weight the result by the export-versus-DMO split. What remains is the cash the business actually keeps.

The benchmark is the gross. DMO and royalties are the deductions that turn it into what the miner banks.