Plan to Increase Revenues from Indonesia's Coal Sector may Backfire
Concerns have arisen over the government's plan to increase royalties and export duties for coal. The Indonesian Coal Mining Association (APBI) expects that this policy will lead to the closure of various coal miners while increasing acts of illegal mining. According to Bob Kamandanu, chairman of the APBI, 60 million tons of coal per year is not listed by any authority and thus can be labeled 'illegal'. Illegal coal mining also implies that the Indonesian government misses out on about IDR 5.6 trillion (USD $495.6 million) per year.
The government's intention to increase revenues from the country's coal industry is expected to hurt Indonesian coal miners. The association also believes the policy change comes at the wrong time as the coal sector has still not recovered from the significant fall in global coal prices. To cope with lower revenues, miners have been busy to make their businesses more efficient (by reducing the stripping ratio and employing less people, while trying to increase production). In recent years, lower coal demand from China and India have significantly reduced profitability of Indonesian coal miners. About 80 percent of Indonesia's coal production is exported and thus is an important foreign exchange earner (USD $26.4 billion in 2012) which has a positive impact on the country's trade balance.
The government of Indonesia wants to introduce the higher royalties and export duties next year in order to gain more revenues from the sector, support the establishment of value-added industries and guarantee allocation of coal to the domestic market (instead of export). However, with regard to the latter, Indonesia has already implemented a domestic market obligation which stipulates that Indonesian coal miners need to allocate a specific amount of production to the domestic market.
Currently, coal royalties are 6.5 percent for those companies that work under a Mining Business License (IUP), and 13.5 percent for those that work under contracts of work (PKP2B). However, the government wants to bring the royalty of the IUP in line with the PKP2B. Regarding higher export duties, the government has not announced any specific details yet.
Indonesia is one of the world's largest producers and exporters of coal. A significant portion of this exported thermal coal consists of a medium-quality type (between 5100 and 6100 cal/gram) and a low-quality type (below 5100 cal/gram). Click here for a detailed overview of Indonesia's coal mining sector.
Indonesia's Production, Export and Domestic Consumption of Coal 2006-2012:
| 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | |
| Production | 194 | 217 | 240 | 256 | 275 | 353 | 383 |
| Export | 144 | 163 | 191 | 198 | 208 | 272 | 304 |
| Domestic | 49 | 61 | 49 | 56 | 67 | 80 | 79 |
in million tonnes
Source: Ministry of Energy and Mineral Resources