Business Indonesia Today

Government of Indonesia Plans to Raise Royalties for Coal Miners

Indonesia's Ministry of Energy and Mineral Resources plans to set royalties for all types of coal at 13.5 percent (of net sales) as part of a revision of Government Regulation No. 9 - 2012 on Tariff and Types of Non-Tax Revenue. Currently, the percentage of royalty depends on the quality of the coal that is extracted as well as the type of permit that is issued to the coal miner. Apart from higher coal royalties, the Indonesian government also proposes a windfall profits tax in case there is a sharp upward price correction.

The two types of permits that are issued by the (local) government to coal miners are the Mining Business License (Ijin Usaha Pertambangan licenses, or IUPs) and Coal Contracts of Work (Perjanjian Karya Pengusahaan Pertambangan Batubara, PKP2B). The royalty for PKP2B is already set at 13.5 percent, while those for IUPs depends on the quality of the coal. IUP-holders with a coal quality of below 5.100 cal/gram pay 3 percent, between 5.100 and 6.100 cal/gram pay 5 percent and over 6.100 cal/gram pay 7 percent as royalty.

 

By giving this equal treatment to miners, the government aims to raise more revenue from Indonesia's mining sector. However, it also threatens profit margins of smaller companies. Producers of higher-quality coal may be more able to absorb the extra royalty costs.

Another negative impact of higher royalties is that it hollows regulatory certainty in Indonesia. In the past, the government provided this incentive (lower royalties) to miners to stimulate investments in (lower quality) coal mining. As a result miners purchased bank loans to finance their business expansion but are now facing significantly raised royalties and thus lower profit margins.

  

Indonesia is one of the world's largest producers and exporters of coal. A significant portion of this exported thermal coal consists of the medium-quality type (between 5,100 and 6,100 cal/gram) and the low-quality type (below 5,100 cal/gram) and a low-quality type (below 5100 cal/gram) for which large demand comes from China and India. According to information presented by the Indonesian Ministry of Energy, Indonesian coal reserves are estimated to last around 83 years if the current rate of production is to be continued. Regarding global coal reserves, Indonesia currently ranks 13th, containing roughly 0.6 percent of total proven global coal reserves according to the most recent BP Statistical Review of World Energy. Around 60 percent of Indonesia's total coal reserves consists of the cheaper lower quality (sub-bituminous) coal that contains less than 6100 cal/gram.

There are numerous smaller pockets of coal reserves on the islands of Sumatra, Java, Kalimantan, Sulawesi and Papua but the three largest regions of Indonesian coal resources are:
SouthSumatra, SouthKalimantan and East Kalimantan

The Indonesian coal industry is rather fragmented with only a few big producers and many small players that own coal mines and coal mine concessions (mainly in Sumatra and Kalimantan).

Since the early 1990s, when the coal mining sector was reopened for foreign investment, Indonesia witnessed a robust increase in coal production, coal exports and domestic sales of coal. Domestic use of coal remains relatively small. Indonesia’s coal exports account for between 70 and 80 percent of total coal production, the remainder is sold on the domestic market. Production, exports and domestic sales are estimated to increase by at least ten percent annually over the next five years

What drives this increase in Indonesian coal production and export?

• Coal is the dominating force in power generation. At least 27 percent of the world's total energy output and more than 39 percent of all electricity is produced by coal-fired power plants due to coal's abundance, its relatively easy and low-cost extraction, and less expensive infrastructure requirements compared to other energy resources.
• Indonesia contains abundant reserves in medium and low-quality coal. These types of coal are competitively priced on the international market (partly due to Indonesia's low labor wages).
• Indonesia's strategic geographical position towards the giant emerging markets of China and India. Demand for low quality coal from these two countries is skyrocketing as they open many new coal-fired power plants to supply electricity to their immense populations. Global coal demand is in fact estimated to exceed global coal production over the next five years, implying rising coal prices.
• Domestic coal consumption in Indonesia is relatively low. Increased national production and international demand therefore results in higher exports.

The main export destination countries for Indonesian coal are China, India, Japan and Korea. Coal has a clear importance for Indonesia's state revenue as the commodity accounts for around 85 percent of mining revenue.

My opinion: raise royalties both to increase revenue in Indonesia in the coal sector, Indonesia is one of the largest coal-producing country in the world. But to be seen and learned again to hike royalties because not all companies in this field is a great company, a large company may be for an increase in royalties is not used as a problem too, but for a small company 'is surely going to be a problem because the amount of the royalties.

But the export and use of coal should also be limited, because over time the coal resources will be exhausted later. The task of the government that oversees the use of coal for domestic and export to other state-negra. Do not get too later even nearby communities harmed coal mining, because mining controlled by outsiders. And those who inhabited there could only be spectators and those rioters who came to power in coal mining areas.

Many people who invest in coal, not only from domestic investors but also from abroad, this is good for Indonesia because Indonesia will generate revenue for the future as well. Plus coal exported abroad also provide considerable revenue for Indonesia, Indonesian State which becomes exports are China, India, Japan and Korea. As a state exporter of course, we believe in because it has coal with good quality. Any clear result to the presence or absence of an increase in government royalties must supervise the use of coal, coal export, and investors to investigate misused and will not be detrimental to Indonesia itself later. And we as citizens of Indonesia should be able to learn to use and utilize existing resources with appropriate,

Source:http://www.indonesia-investments.com/id/doing-business/business-columns/government-of-indonesia-plans-to-raise-coal-royalties-for-miners/item1671