The government expects an increase in state revenues from the coal and mineral sector this year to offset the projected decline in revenues from the oil and gas sector.

In the proposed revision of the 2015 State Budget, the government raised state revenues from the mining sector by 28.5 percent to Rp 52.2 trillion (US$4.13 billion) from Rp 40.6 trillion in the original budget, or about 50 percent higher than Rp 35.4 trillion last year.

“The income will mostly come from the coal sector, but the mineral sector is also expected to give a higher contribution,” the Energy and Mineral Resources Ministry’s mineral and coal director general R. Sukhyar said on Wednesday.

He added that royalties for coal would be set at 7 percent of total sales for low-rank coal, 9 percent for mid-rank coal and 13.5 percent for high-rank coal.

The mineral and coal directorate general is also upbeat about its state income target since the involvement of the Corruption Eradication Commission (KPK) in monitoring works would encourage miners to report their sales correctly. 

Last year, with the KPK observing mining firms in 12 provinces, the ministry obtained trillions of rupiah from a number of mining firms that previously did not pay their full royalty payments.

The KPK is now moving to widen the monitoring coverage to 19 provinces in Indonesia, according to Dian Patria, who directs the KPK’s supervision of the mineral and coal sector.

Last year’s Rp 35.4 trillion came mostly from coal mining companies as the contribution from the mineral sector dropped following the government’s ban on mineral ore exports in January 2014, which severely affected mining firms’ incomes. Despite the ban, a number of miners that have shown serious commitment to building smelters, as requested by the mining law, are still allowed to export their semi-finished mineral products.

“We will speed up the development of smelters. With the value-added products priced higher, the contribution to the state will also be higher,” said SuJatmiko, a director at the mineral and coal directorate general.

Higher contributions from the mineral and coal sector are expected to compensate the decline in state revenues from the oil and gas sector, which is also supervised by the Energy and Mineral Resources Ministry. The sector, which has long been a major contributor to the state, is currently under pressure from the sharp decline in crude oil prices in the world market. In 2014, the government received $28 billion in income from the oil and gas sector. 

Under the proposed revision of the state budget, the government’s take from the oil and gas sector will decline to $14.9 billion this year, around half of last year’s takings, Upstream Oil and Gas Regulatory Special Task Force (SKKMigas) finance deputy Budi Agustyono said.

The government’s proposed income from the oil and gas sector was actually lower, but the House of Representative’s budget commission asked SKKMigas to maintain the figure as stated in the original budget, but lower the amount of cost recovery paid to contractors to $14.09 billion from previously around $18.9 billion.

SKKMigas spokesman Rudianto Rimbono said the regulator would likely try to defer some cost recovery for several years to push down this year’s amount. “We will likely negotiate to defer the payment for asset depreciation because lowering opex will mean reduction in activity, which we don’t want to see,” he said.