Govt Expects Rising Income from Coal Despite Weak Output

The Energy and Mineral Resources Ministry is expecting to see rising royalties and fees from the mineral and coal sectors this year despite plunging production due to low selling prices.

According to the proposed state budget for 2016, the non-tax income from minerals and coal is targeted to reach Rp 40.82 trillion (US$3 billion), roughly a 28 percent jump compared with this year’s target of Rp 31.7 trillion. Royalty payment from the coal industry usually dominates contribution to the total income from the mineral and coal sector.

Although income is expected to increase, the production plan is lower. 

“The PNBP [non-tax income] for 2016 is based on a production plan of 400 million tons of coal,” said Adhi Wibowo, the director for coal at the Energy and Mineral Resources Ministry’s mineral and coal department. The output target is lower than the 425 million tons expected by the end of 2015. 

For this year’s target, some argued that the figure would not be achieved as production had been declining in the last few months, meaning that the contribution target to the state income would also be lower than targeted.

“As of August 15, the non-tax income from the mineral and coal sector reached Rp 19.7 trillion,” said Sri Rahardjo, the director for program development at the mineral and coal office.

The total production during the January to July period of that year was 232.9 million tons, declining by approximately 15 percent compared with 274.9 million tons in the same period last year. Out of the total production, as many as 186.8 million tons were exported and only 46.1 million were delivered to the domestic market. 

The narrowing margin between production and cost has been seen as the main reason behind the output drop. Like other coal miners in the world, Indonesian coal mining companies are currently under pressure due to the plunging commodity price. 

The plunge in prices is also caused by slowing demand following weakening economic activities in countries that are the world’s main consumers of the commodity, such as China — with the yuan devaluation adding to the reasons for price fluctuations. 

Expectation on the recovery of the coal price has also been shadowed by the current plunge in the price of crude oil, which remains the main energy source in the world. 

Indonesia, a major thermal local exporter, set its coal price reference (HBA) for 6,322 kcal/kal coal at $59.14 per ton for August, already 7.4 percent lower compared to a reference price of $63.84 per ton set in January. 

The global coal price has dropped around 10 percent this year, extending losses after a bearish trend since late 2011, according to figures from Bloomberg. The benchmark Newcastle contracts were at $58.35 per ton on Tuesday, data from Reuters showed. 

The Indonesian Coal Mining Association (APBI) chairman Pandu Sjahrir said that domestic coal production would continue to drop further, between 17 and 25 percent by the year’s end, due to weak prices and unfavorable regulations in Indonesia. Therefore, he said, the total output would likely be well below 400 million tons throughout this year.

PLN to Keep 35,000 MW Megaprojects on Priority List

Amid the possibility of a review of the ambitious project to build enough plants to produce 35,000 more megawatts (MW) of power for the country, state owned electricity firm Perusahaan Listrik Negara (PLN) has reiterated the importance creating the new infrastructure to anticipate higher demand in the future.

PLN’s director for strategic procurement and primary energy, Amin Subekti, said that the company estimated that the country’s electricity demand would continue to grow despite a current weakening in demand.

“Infrastructure development always has to be performed earlier than the escalation of consumption. We are currently seeing weakening demand for power, but this is temporary and we still anticipate that our consumption will continue to be bigger than it is now,” Amin said on Friday.

PLN is currently working on a number of power plant projects that are part of the government’s plan to add 35,000 MW to Indonesia’s electricity generating capacity by 2019. The new capacity is crucial to help the country avoid blackouts in the next few years. 

However, since the introduction of the megaproject by President Joko “Jokowi” Widodo in October last year, critics have said the plan was made necessary by past failures, particularly when a so-called fast track program that aimed to produce an addition 10,000 MW of electricity frequently missed completion deadlines because of various issues, ranging from incapable developers, problems with financing and delayed land acquisitions.

In the new 35,000 MW program, PLN will develop 5,000 MW, a reduction from a previous plan for the company to produce 10,000 MW in capacity. The remaining capacity will be developed by independent power producers, which have to pass a thorough due diligence process before they will be able to win projects. 

Earlier on Thursday, the newly appointed coordinating maritime affairs minister, Rizal Ramli, said that he would ask the Energy and Mineral Resources Ministry to re-calculate the 35,000 MW program. 

Rizal argued that developing such a big program within a five-year period was unrealistic.

The 35,000 MW program was introduced to anticipate an estimated growth of electricity consumption in the country of around 8 percent per year to support economic growth of at least 6 percent. 

To balance the growth, the country will have to have an additional capacity of 60 GW during a 10-year period, according to figures from the Energy and Mineral Resources Ministry. 

However, the rate of growth in electricity consumption has been declining year to date, particularly because the industry was affected by slowing economic growth. Figures from PLN showed that nationwide electricity consumption grew by only 1.78 percent to 98.27 terrawatt hours (TWh) in the first six months of the year compared to 96.56 TWh in the same period last year. 

The Energy and Mineral Resources Ministry’s director general for electricity, Jarman, said if there was decline in consumption because of a weakening economy, the long-term power demand would need to be re-calculated. 

However, according to Jarman, that doesn’t mean the 35,000 MW plans should be scaled down. 

“We only need to shift the power plants’ operation times instead of lowering the amount of capacity because the demand will continue to grow,” Jarman said.

Indonesia’s Coal Exports Slide 18% as Overseas Demand Weakens

Coal exports from Indonesia, the world’s biggest exporter of the power-station fuel, have fallen 18 percent so far this year as overseas demand weakens, according to the country’s Energy and Mineral Resources Ministry.
Shipments dropped to 186.8 million metric tons in January to July from 227.9 million tons a year earlier, Adhi Wibowo, director for the ministry’s coal business, said by text message on Wednesday. Exports are down because of slumping demand from overseas buyers, Wibowo said, without specifying any countries.
Benchmark Asian thermal coal prices are heading for a fifth annual loss after Australia and other producers flooded the market and demand faltered in China, the biggest consumer, because of stricter environmental controls and support for domestic miners. About a quarter of Indonesia’s coal export were destined for China from 2008 to 2013, according to the ministry’s data.
Indonesia was the hardest hit of China’s coal suppliers in the first half of the year as the country’s imports fell 38 percent, the biggest drop for that the period in at least five years, according to most-recent China customs data published last month. Shipments from Indonesia declined 49 percent, the most of China’s five largest suppliers.
Indonesia mined 232.9 million tons of coal during the January-July period, down 15 percent from 274.9 million tons a year earlier, Wibowo said. Domestic consumption fell to 46.1 million tons in the same period from 47 million tons, he said.
Australia’s Newcastle coal, an Asian marker grade, has fallen about 13 percent in the last 12 months to $59.54 a ton as of Aug. 7. Indonesia last month cut its benchmark price to a record low of $59.16 a ton.

Output Drops as Price, Rulings Hurt Miners

The country’s coal production took another nose dive at the end of this year’s first semester as the price of the energy commodity showed no sign of rebound amid regulations that business players have deemed to be unhelpful. 

Figures from the Energy and Mineral Resources Ministry’s directorate general for mineral and coal showed that coal production was 202.7 million tons during the January to June period of the year, a 17.4 percent drop compared to the 245.5-million-ton level hit in the same period of last year.

“Of the total production until June, as much as 38.6 million tons went to the domestic market,” said Adhi Wibowo, the director for coal at the ministry.

The deliveries to domestic markets during the first semester of the year dropped 7.4 percent from the 41.7 million tons of coal sold to local buyers during the January to June period of last year. On the export side, as much as 164.1 million tons of Indonesian coal was sent abroad, a 17 percent fall compared to the 197.9 million tons sold overseas in the first six months of last year.

Like other coal miners in the world, Indonesian coal mining companies are currently under pressure due to the plunging commodity price. The plunge in price is partly caused by slowing demand following weakening economies in countries that are the main consumers of the commodity. Expectation of the recovery of the coal price has also been dented by the recent plunge in the price of oil, which remains the main energy source in the world.

Indonesia, a major thermal local exporter, set its coal price reference (HBA) for 6,322 kcal/kal coal at US$59.59 per ton for June, already 6.6 percent lower compared to a reference price of $63.84 per ton set in January. Meanwhile, the cal price at the Newcastle port of Australia, which is the world’s benchmark for thermal coal, was at around $61 per ton at the end of June, according figures from Reuters.

The Indonesian government hopes to see national coal production reach 425 million tons by the year’s end. Coal mining businesses remain a significant contributor to the country’s revenue of non-tax income.

However, national coal production would likely hit less than 400 million tons as mining firms are running out of cash and cutting off production, according to the chairman of the Indonesian Coal Mining Association (APBI), Pandu Sjahrir.

“This year, production levels could go far lower by 17 to 25 percent due to the weakening price. Moreover, unfriendly regulations from the government, including the [planned] income tax for coal exports, will also push down mining firms,” Pandu said.

He was referring to the government’s plan to impose a 1.5 percent income tax for coal exports starting August 8.

Meanwhile, the price was in a flat trend as there was no sign of demand recovery from the main coal markets of China and India, according to Pandu.

“There is an increase in demand in India but it cannot overcome the lower demand from China. Meanwhile, Australian coal is getting cheaper because they enjoy a lower exchange rate against the US dollar in addition to less regulations,” he said.

Government Delays Plan to Raise Coal Royalties Amid Plunging Price

The government will postpone a plan to increase royalty payments from coal miners as they are already burdened with the commodity’s plunging price, a top official has said.

The decision was based a government review in which it found that the low global coal price had prompted ongoing losses for coal miners in Indonesia, one of world’s major producers of the commodity.

“The government decided to review the plan based on the current situation and price,” Energy and Mineral Resources Ministry’s director general for mineral and coal, Bambang Gatot Ariyono, said last week.

Coal price reference (HBA) for 6,322 kcal/kal coal stood at US$59.19 per ton for July, down from around $63 per ton at the beginning of the year and half the price it was four years ago, over $127 per ton.

Bambang said the government had acknowledged that the current coal price slump was caused by weak local and global demand as Indonesia and countries that import the commodity faced weaker economic growth.

Prices at the Newcastle Port of Australia, which is the world’s benchmark for thermal coal, was at around $61 per ton at the end of June, also half of what it was in 2011.

The Energy and Mineral Resources Ministry’s proposal for the plan to the Finance Ministry’s Fiscal Policy Office (BKF) will also be delayed, according to Bambang.

The ministry’s initial proposal was to increase royalty payments for all coal types to the range of 7 to 13.5 percent, an increase from the current level of 3 percent for low-calorie coal, 5 percent for the medium-calorie type and 7 percent for high calorie, as stipulated in a 2012 regulation.

The plan was based on the ministry’s assessment that the current level would unlikely help the mineral and coal office meet its non-tax revenue (PNBP) target this year of Rp 52.5 trillion (US$3.91 billion).

The revenue target from the coal sector was calculated based on the ministry’s coal output target this year to 455 million tons — higher than the initial aim of 425 million tons — to offset the ongoing decline in the commodity’s price.

From last year’s total output of 458 million tons, the mineral and coal office collected Rp 35.4 trillion in royalties from the holders of mineral and coal mining permits and contracts of work.

Indonesia’s coal production stood at 202.7 million tons in the first six months of the year, a 17.4 percent drop compared to 245.5 million tons in the same period last year, according to the office’s data.

Industry players have rejected the plan to increase the royalty payments as it would be too burdensome for their businesses, which have been under pressure because of the decline in coal prices.

“It is not the right time to impose the plan as some coal miners are planning to decrease production,” said Pandu Sjahrir, chairman of the Indonesian Coal Mining Association (APBI), as quoted by kontan.co.id. 

To maximize state revenue collection from the coal sector, the mineral and coal office has been working with the Corruption Eradication Commission (KPK) to ensure that all mining companies have fulfilled their obligations to the state, including paying royalties. The KPK found last year that numerous miners had not paid their royalties.