The Indonesian Government’s proposal to increase coal mining royalties to 13.5% of net sales in 2014 from the current rate of 5-7% is aimed at equating the payments of every coal miner in the archipelago, the timing is questionable as is the likely impact on small mining companies. Globally the industry is struggling from a number of factors, including low prices, rising supply and lack of capital, and Indonesia’s producers are being hit hard.

Many small companies have shut down while others are struggling to work under their contracts and even larger producers are struggling to justify mine and infrastructure expansion plans.

Currently, smaller or newer miners holding IUPs are obliged to pay royalties of 5-7%. The IUPs were issued by local administrations after introduction of the 2009 Mining Law. These companies pay royalties based on the calorific value of coal they produce. The rate for coal with calorific content less than 5100 kCal/kg, for example, is set at 3% of net sales; a rate of 5% is set for coal with a CV between 5100 and 6100 kCal/kg; while 7% is demanded for coal with a CV more than 6100 kCal/kg.

Large firms and some multinationals holding contracts of work (CoW) and smaller miners working with legal mining licences (PKP2B) are exempt from the proposal as they already pay royalties set at 13.5% for the coal, both low-grade and high-grade, they produce.

Energy and Mineral Resources Ministry spokesman Paul Lubis says the change has been proposed in a bid to increase state revenue from the sector. “We feel the current revenue from royalty payments is not as big as the coal the country has produced.”

The Indonesian Coal Mining Association (ICMA) and other representative bodies will oppose the proposal, claiming it will hurt miners, particularly the smaller ones. “We think it would be more reasonable if the government equated the royalty rate rule according to the quality of the coal both miners working under the PKP2B and IUP licences produce,” ICMA chairman Bob Kamandanu says.