The government of Indonesia decided to postpone its plan to raise royalties for the country’s coal miners. Bambang Gatot, senior official at the Ministry of Energy and Mineral Resources, said the government will not raise coal royalties yet given the sector’s current troubled climate (referring to low global coal prices). Indonesian coal miners will be happy to hear this news as they, especially the smaller-sized coal miners, are having difficulty to survive in the post-2000s commodities boom era.
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:
in million tons
Source: Indonesian Coal Mining Association (APBI)
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