Indonesia delays mining royalty hikes, but policy uncertainty weighs on sector

[JAKARTA] Indonesia has delayed plans to increase royalties on several mineral commodities as the government seeks a policy framework that can boost state revenue without undermining the competitiveness of the mining industry.

Energy and Mineral Resources Minister Bahlil Lahadalia said on Monday (May 11) that authorities are still gathering feedback from mining companies before finalising the proposed changes.

The government had previously planned to raise royalties on several key commodities – including coal, nickel, copper, gold and tin – as part of broader efforts to capture more value from Indonesia’s vast natural resources sector. The policy was initially intended to take effect in June this year.

Officials are also weighing additional fiscal measures, such as export duties and a windfall tax on certain mineral shipments when commodity prices are high.

But Bahlil said policymakers want to ensure the new framework strikes the right balance between increasing government revenue and maintaining a healthy mining industry.

“We are still gathering input from industry players so the formulation of the policy does not burden the sector,” he said, as quoted by Antara news agency.

For now, the delay offers temporary relief for mining companies. However, uncertainty surrounding the final policy, particularly the possibility of additional levies, could continue to weigh on investor sentiment in the coming months.

Hendra Sinadia, executive director of the Indonesian Mining Association, told The Business Times the planned increase in royalty rates would add further pressure to operating costs that are already elevated by higher fuel prices.

“Although commodity prices have risen, operating expenses have also increased. Smelter companies, in particular, are facing higher input costs, including nickel ore and sulfur, the latter affected by supply disruptions linked to tensions in the Gulf region,” Hendra said.

Dendi Ramdani, vice-president for industry and regional research at Bank Mandiri, said Indonesia’s mining industry is currently facing mounting global uncertainty, with weakening demand and volatile prices partly driven by the ongoing conflict in Iran.

Pad state coffers

Indonesia, one of the world’s largest exporters of coal and the dominant global supplier of nickel, has been exploring ways to increase government revenue from commodities, particularly during periods of strong prices.

Yet, the proposed royalty revision – unveiled during a public hearing on May 8 – has already unsettled investors and triggered volatility in mining stocks.

The benchmark IDX Composite index closed 0.9 per cent lower on Monday, partly reflecting negative sentiment surrounding the proposed revision to mineral and coal royalties.

Mining shares were among the biggest decliners. Timah, Vale Indonesia and Merdeka Copper Gold led the losses as investors grew concerned about policy uncertainty and the potential impact on corporate margins.

Under the proposed changes, tin would face the largest royalty increase, rising by around 10 percentage points from the previous rate. Gold and copper royalties would increase by about three percentage points, silver by roughly two points, and nickel ore by around one point.

As a result, Timah – Indonesia’s largest listed tin miner – would likely be the most affected if the proposal is implemented. Nickel producers would face a smaller direct impact, particularly diversified players such as Aneka Tambang, analysts said.

Bisman Bakhtiar, executive director at energy think tank Center for Energy and Mining Law Studies, said coal producers may be especially sensitive to the changes because the global coal market is highly price-driven, meaning higher costs could quickly undermine export competitiveness.

Nickel and copper producers may face a more moderate impact, Bisman said, as their profitability is also influenced by downstream processing activities and the degree of industrial integration.

However, he cautioned that the burden on miners could become significant if multiple fiscal measures are introduced simultaneously.

“If these three policies are implemented together – royalties, export duties and windfall taxes – the fiscal burden on the mining industry will increase sharply,” Bisman said. “This could reduce Indonesia’s competitiveness compared with other resource-producing countries.”

He added that higher operating costs could make mining companies more cautious about expanding or launching new projects, although strong commodity prices could partly offset the impact.

Analysts said the market reaction highlights rising policy risks in Indonesia’s resource sector. The research and investment team at Mirae Asset Sekuritas noted that rapid regulatory changes could increase the sector’s policy risk premium.

“Historically, every announcement of a royalty increase has triggered a negative short-term reaction from the market,” the brokerage said in a note.

Brokerage Stockbit Sekuritas said the mining sector could remain volatile in the near term as investors assess the evolving policy landscape.