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Indonesia to raise coal royalties

World Coal,

The government of Indonesia is planning to raise coal royalties in March in an attempt to increase revenue from the natural resources sector.

The hike, which still needs approvals from the finance and economic ministries, will roughly double royalties most coal miners currently pay.

Coal and Minerals Director General Sukhyar, commented: “The main impact will be felt by companies mining low calorie [coal]”. Smaller and newer mines will also face problems, he suggested.

Low calorie coal – 3000 kilocalories/kg or less – accounts for approximately 30% of Indonesia’s output.

The raise in royalties could not have come at a worse time for miners, as global coal prices have approximately halved since 2011, negatively impacting profits.

The Indonesian Coal Mining Association (ICMA) has requested that the government delays implementation of the hike until coal prices have exceeded US$80/t (prices are currently approximately US$72/t).

The ICMA has highlighted that many firms entered Indonesia’s coal mining industry in 2010 – 2011 when the outlook for the coal mining industry was positive (and coal prices were high). These companies borrowed capital to invest in their coal business. However, the sluggish global economy (triggering declining coal prices) have made it difficult for these firms to repay their debts.

Coal prices are expected to take approximately two years to recover, however the government will not provide special assistance for these companies.

The royalty hike is part of a broader scheme to tighten regulation in the industry, after 10 – 15% of miners were found to be in breach of rules including tax and royalty payments.

Edited from various sources by Emma McAleavey.

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