Coal

The Indonesian Government plans to double coal royalties from next month, in addition to improving monitoring of the coal mining sector.

According to local media reports, the federal government intends to tighten its control of the industry, which is largely governed by state administration.

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The royalty rise will increase non-tax revenues from coal and minerals to IDR52.2tn ($4.05bn) this year from IDR35.4tn last year.

Yet to be approved by the finance and economic ministries, the proposal to double royalties comes at a time when coal prices have been declining worldwide.

The industry fears that higher royalties will affect smaller and newer mining firms that focus on producing low-quality coal.

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"The industry fears that higher royalties will affect smaller and newer mining firms that focus on producing low-quality coal."

The proposal is applicable to mining business permit (IUP) holders in Indonesia.

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Coal and Minerals director general Sukhyar said: "The main impact will be felt by companies [mining] low calorie [coal]."

Low calorie coal of up to 3,000 kilocalories per kilogram makes around 30% of Indonesia’s output.

The Indonesian Coal Mining Association (ICMA) requested that the government delays the increase until coal prices move from the current $72 per tonne to more than $80.

Between 2010 and 2011, many companies entered Indonesia’s coal mining industry and borrowed capital to invest in coal business; however, smaller mining companies have not been able to repay their debts due to the sluggish global economy.

According to Sukhyar, by 2019, the country expects to reduce annual coal production to 400 million tonnes (Mt) while boosting domestic consumption from 90Mt this year to around 190Mt.

Image: The proposal to double coal royalties will apply to mining business permit holders. Photo: courtesy of dan/ FreeDigitalPhotos.net.