The Government of Indonesia has postponed its plan to raise royalties for the country’s coal miners as a result of the coal sector’s current troubled climate caused primarily by low prices.
A senior official at the Ministry of Energy and Mineral Resources announced the postponement late last week, a move that has pleased the country's coal miners, particularly smaller-sized miners who are struggling to survive.
Due to the downturn Indonesian coal miners have been cutting production volumes as the free cash flow from some miners turned negative. The proposed royalty hike brought widespread concern from miners and from coal industry groups.
The proposed increase was first announced by the government at the end of 2014 in a bid to generate more non-tax revenue from the coal industry in order to finance its economic and social development programs. However, the royalty hike has been delayed several times due to concerns that it would lead to the closure of more coal mining companies, the loss of jobs and would boost illegal mining.
Coal prices are still touching the lowest levels since 2009. Indonesia’s July 2015 coal reference price was set at US$59.19 per tonne, a 0.67% decline from the previous month. At the start of the year the price was US$63.84 per tonne. There is little expectation of a quick rebound in coal prices, especially given the current low petroleum prices.
Data from the Energy and Mineral Resources Ministry shows that in the first six months of 2015, Indonesia produced 202.7 million tonnes of coal, which was a 17.4% decline from the production rate in the same period of 2014. Coal exports fell 17% to 164.1 million tonnes over the same period.
Despite the royalty decision, the Indonesian Coal Mining Association (APBI) says the government still plans to impose a 1.5% income tax for coal exports starting from August 8, 2015.