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Indonesia postpones coal royalty rise as miners resist due to low prices

Highlights

The Indonesian government has postponed plans to raise coal royalties due to strong resistance from small and medium-sized miners saying it was an extra burden while prices were low, a senior government official said Thursday.

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Indonesian miners met energy ministry officials this week to state their opposition to the plan to raise coal royalty payments across the board to 13.5% from the current 3-7%, industry sources said.

Gultom Guska, deputy coal director of the energy ministry's directorate for minerals and coal, told Platts the plan to raise coal royalty payments has been postponed because of low coal prices.

He said it was "not a good time" to implement an increase, adding that the issue is now being handled by the country's Coordinating Ministry for Economic Affairs.


An Indonesian coal mining consultant said a final draft of the energy ministerial regulation on the royalty rise plan has already been submitted to the economic affairs coordinating ministry.

Indonesian Coal Mining Association officials could not immediately be reached for comment.

An Indonesian coal miner whose company produces about 7 million mt from different coal mines across the country said his company was worried about the impact of the coal royalty payment increase.

He said it would be a major problem for his company as it faced low prices, a declining imported coal market in China and intense competition to sell coal in India.

The thermal coal industry has been plagued by weak prices due to subdued demand from both China and India.

An official with a major Indonesian coal mine said coal and minerals director general R. Sukhyar had responded to the miners' plea in the meeting this week by saying that another meeting with officials of the economic affairs coordinating ministry will be called to discuss the matter.

Two traders contacted by Platts said they were unaware of any plans to postpone the rise in coal royalty payments.

Edi Prasodjo, coal director at the Indonesian energy ministry's directorate for minerals and coal, said last month "final" discussions about the royalty rise proposal were underway with various "stakeholders."

Directorate of minerals and coal management director Paul Lubis also said last month he believed the proposal to increase all coal royalty payments to 13.5% would be approved this year.

Major Indonesian coal companies currently pay 13.5% coal royalty, while small and mid-sized producers pay about 3-7%. The proposal is to impose a uniform coal royalty of 13.5%.

The royalty payment rise would only affect small and mid-sized coal producers holding Izin Usaha Pertambangan (IUP), or coal mining licenses.

It would not affect coal contract of work (CCOW) holders, which are mainly major Indonesian producers whose output comprises about 70% of Indonesia's coal production.

Indonesian ministry documents show that as of December 2012, the country had 74 CCOW holders classified as first- to third-generation producers.

Of the 74, eight are first-generation miners and the country's biggest coal producers: Adaro, Arutmin, Berau, Indominco Mandiri, Kaltim Prima, Kideco Jaya Agung, Multi Harapan Utama and Tanito Harum.

A coal analyst has estimated that Indonesia has about 3,900 coal IUP holders.

The royalty rise proposal was first discussed about three years ago, but did not gain traction.

Indonesia has gone ahead this year with a hotly contested ban on the export of unprocessed minerals. The ban does not cover coal.

In January, Indonesia implemented the minerals ban even though the move could mean job displacement for hundreds in the minerals sector, add pressure on the country's fragile financial position and weigh on the rupiah, which was one of the world's worst-performing currencies last year.

--Cecilia Quiambao, cecilia.quiambao@platts.com
--Edited by Jeremy Lovell, jeremy.lovell@platts.com