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
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,
