Due to the low global coal prices Indonesian coal miners have been cutting production volumes as some miners’ free cash flow turned negative, meaning that generated cash from coal production cannot cover companies’ operational costs (causing some miners to diversify to other businesses). An additional burden - higher (nearly doubling) coal royalties - could cause more damage to these companies (although low-grade coal would possibly be exempted from the planned hike).

The hike was first announced by the government at the end of 2014 as it aims to generate more non-tax revenue from the coal industry in order to finance its economic and social development programs. However, the coal royalty hike has been delayed several times due to concerns that it would lead to the closure of more coal mining companies, the loss of jobs, and would boost illegal mining.

Coal is still touching its lowest level since 2009. Indonesia’s July 2015 coal reference price was set at USD $59.19 per metric ton, a 0.67 percent decline from the previous month. At the start of the year the price was still at USD $63.84 per ton. There is few expectation of a quick rebound in coal prices, especially given the globe’s current low petroleum prices.

In the first six months of 2015, Indonesia produced 202.7 million tons of coal according to data from the Energy and Mineral Resources Ministry. This is a 17.4 percentage point decline from the coal production rate in the same period last year. Coal exports fell 17 percent to 164.1 million tons over the same period, signalling that global demand for the commodity is yet to rebound.

The Indonesian government targets coal production at 425 million tons in 2015. However, Pandu Sjahrir, Chairman of the Indonesian Coal Mining Association (APBI), believes that domestic production will remain below the level of 400 million this year as mining firms are running out of cash (and thus decide to curb production rates). Sjahrir added that the government still plans to impose a 1.5 percent income tax for coal exports starting from 8 August 2015.

Indonesian Production, Export and Consumption of Coal:

     2007    2008    2009    2010    2011    2012    2013    2014
Production     217     240     254     275     353     412     474     458
Export     163     191     198     210     287     345     402     382
Domestic      61      49      56      65      66      67      72      76

in million tons
Source: Indonesian Coal Mining Association (APBI)

Further Reading:

Coal Mining Indonesia: Power Program, Price, Production & Renegotiations
Coal Mining Industry Indonesia: Troubled Licenses & Falling Prices
Coal Mining Update Indonesia: Coal Production to Fall in 2015
Coal Mining Industry Indonesia: Higher Royalties for IUP-Holders
Illegal Coal Shipments from Indonesia Form a Persistent Problem
Coal Mining in Indonesia: Safeguarding Future Energy Sources
Overview of the Coal Mining Industry in Indonesia