Indonesia plans to increase coal royalty for miners operating under Coal Contract of Works (CCOW), potentially adding pressure to the industry amid a slew of unfavorable new regulations and the downtrend in prices.
According to local media reports, the government is seeking to increase coal royalty paid by CCOW miners to 15%, from currently 13.5%. Reportedly, the higher coal royalty is part of a draft of government regulation on tax and non-tax state revenue, released on Friday, 1 Feb’19.
The planned new royalty will be imposed when the miners switch to a Special Mining Business License (IUPK) once their CCOW expire as required by the 2009 Mining Law. While the royalty may be increased, the corporate tax will remain unchanged at 25%.
Rofianto Kurniawan, head of Fiscal Policy Agency at the Ministry of Finance, stated that the regulation will be issued soon.
However, Hendra Sinadia, executive director of the Indonesian Coal Mining Association, said the association has yet to hear details of the plan to raise royalty from the government.
Raising the royalty could give another blow for Indonesian miners who have been facing a plethora of fresh regulations amid slumping coal prices. For instance, effective 1 Feb’19, the government has implemented a one-month trial period for mandatory use of national insurance companies for coal and palm oil exports despite widespread resistance from miners.
Miners with CCOW, which was granted under the now defunct 1967 Mining Law, contribute 70% of Indonesia’s total coal production.
PT Adaro Energy, one of Indonesia’s top coal producer, said it expects when the government is drafting the regulation, it would apply royalty formula that can make the investment scenario in the country’s coal industry more attractive. Thus, it will result in optimal contribution to the state revenue, the company mentioned in a statement to Coalmint.
The Jakarta-listed coal miner cited an example of Australia with Queensland applying 7% royalty for coal prices of up to $100/mt. As per Adaro, Australia applies taxes and royalties that creates positive environment for coal investment, helping the country secure its position as one of the world’s biggest coal exporters.
“We hope the increased royalty tariff will only be applied at a high-price condition. The formula is similar to windfall profit tax. With such formula, companies can operate sustainably”, Adaro said.
“Thus, the country’s coal industry will be able to compete with other coal-exporting countries and simultaneously optimizing the national coal reserve to support the national energy security,” the company added.
Indonesia mined 528 Mnt coal in 2018, up 14.5% from 461 MnT in 2016, according to data from the Energy and Mineral Resources Ministry. This year’s production is expected to be around the same level as last year, the ministry said on its website.
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