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Indonesia's smaller coal miners to take hit from royalty hike: official

Tuesday, February 24, 2015 - 16:38
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Indonesia's plan to roughly double coal royalties next month is expected to hurt most for smaller and newer firms producing low-quality coal, government and industry officials say, with many struggling as prices have halved since 2011.

[JAKARTA] Indonesia's plan to roughly double coal royalties next month is expected to hurt most for smaller and newer firms producing low-quality coal, government and industry officials say, with many struggling as prices have halved since 2011.

The world's top exporter of thermal coal is looking to increase returns from its output to promote development in Southeast Asia's largest economy, and is tightening the central government's grip on a sector loosely governed by regional administrations.

The hike, which still needs approval from the finance and economic ministries, will roughly double royalties most coal miners currently pay and is expected to be introduced in March. "The main impact will be felt by companies (mining) low calorie (coal)," Coal and Minerals Director General Sukhyar, who goes by one name only, told reporters. Smaller and newer miners with higher costs would also face problems, he said.

Low calorie coal - 3,000 kilocalories per kilogram or less - accounts for around 30 percent of Indonesia's output, which is expected to reach 425 million tonnes this year, Sukhyar added.

The increase will apply to holders of newer mining licences (IUP), while larger older generation firms with so-called Contracts of Work, like Bumi Resources and Berau Coal Energy, will be unaffected. "Firms that have just started production and are repaying their costs - this is where problems emerge," Sukhyar said, noting that the government would not provide special assistance. Coal prices could take two years to recover, he said.

The move - expected to increase non-tax revenue from coal and minerals to 52.2 trillion rupiah (US$4.05 billion) in 2015 from 35.4 trillion rupiah in 2014 - is not intended to boost revenues but to promote economic growth, Sukhyar said.

Indonesia hopes by 2019 to reduce coal production to 400 million tonnes a year and increase domestic consumption to around 190 million tonnes from around 90 million tonnes this year, he said.

According to the Indonesian Coal Mining Association (ICMA), the royalty hike is part of a broader tightening of central government controls on the sector after 10-15 per cent of miners were found in breach of rules including tax and royalty payments. "The government wants to follow the KPK's advice and address this problem," ICMA Executive Director Supriatna Suhala told Reuters, referring to Indonesia's Corruption Eradication Commission.

But the association says the rules could backfire and has asked government to postpone them until coal prices climb above US$80 per tonne from around US$72 at present. "A lot of our members entered (the market) in 2010 and 2011 when prices were high. They already have debts. These smaller firms are finding this hard to take." Any reduction in Indonesia's coal output by smaller firms would likely be balanced with increases from larger firms, Suhala said.

REUTERS