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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.