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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 

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.