Coal Mining Industry Indonesia: Higher Royalties for IUP-Holders

Foreign exchange earnings from the mineral sector have been limited in 2014 as the government introduced a ban on exports of mineral ore (per January 2014), part of the 2009 Mining Law, in an attempt to boost the country’s processing facilities and enhance future income from the export of added-value mineral products. As Indonesia still lacks sufficient smelting capacity this ban led to plunging mineral exports (despite some companies - Freeport Indonesia and Newmont Nusa Tenggara - being allowed to resume copper concentrate exports after renegotiations with the government) and it will take at least two or three years before these smelting facilities are build. To counteract the decline in state income from mineral exports, the Indonesian government thus wants to raise coal royalties. The government targets to obtain IDR 44.3 trillion (USD $3.5 billion) in non-tax state income in 2015, up from the IDR 39 trillion target last year. Last year’s target will most likely not be achieved as per 19 December 2014 non-tax state income amounted to IDR 34.3 trillion only. Sukhyar said that last year’s target cannot be achieved due to low global coal prices.

In Indonesia’s coal mining industry the authorities issue a Mining Business Permit (Izin Usaha Pertambangan, abbreviated IUP) to new coal mining companies. However, there are still companies that hold a Coal Contracts of Work (Perjanjian Karya Pengusahaan Pertambangan Batubara, or PKP2B). Generally, these PKP2B-holders are established larger players. The IUP has been introduced to replace the PKP2B. Coal royalties for PKP2B-holders are generally set at 13.5 percent, while the level of royalties for IUPs depend on the quality of the coal.

Indonesian Coal Royalties:

Coal Type	Current Royalties	Proposed Royalties
< 5,100 cal/gr	3%	7%
5,100 - 6,100 cal/gr	5%	9%
> 6,100 cal/gr	7%	13.5%

During the administration of former President Susilo Bambang Yudhoyono, the government had already announced plans to raise coal royalties. However, this move met resistance from the domestic industry as coal mining companies were already experiencing a rough time amid low coal prices amid sluggish global demand (and rising stockpiles in China).

Sukyar said that Indonesia produced a total of 435 million tons of coal in 2014, above the target of 420 million tons. Most of domestically-produced coal in 2014 - about 359 million tons - was exported abroad while the remainder was absorbed by the domestic market. The government had set a domestic market obligation of 95 million tons of coal in 2014 but failed to achieve the target primarily because there was a delay in the establishment of electric steam power plants.

In 2015 the Indonesian government targets a coal production figure of 425 million tons, of which an estimated 333 million tons are to be exported abroad.

Indonesian Production, Export and Consumption of Coal:

	2007	2008	2009	2010	2011	2012	2013	2014
Production	217	240	256	275	353	383	421	435
Export	163	191	198	208	272	304	349	359
Domestic	61	49	56	67	80	79	72	76

^{in million tons
Source: Ministry of Energy and Mineral Resources}

Further Reading:

• Coal Mining in Indonesia: Safeguarding Future Energy Sources
• Indonesia Coal Update: Export, Production and New License System
• Overview of the Coal Mining Industry of Indonesia

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