- Indonesia proposes higher royalties for coal and metal producers
- Royalty hike aims to boost government revenue for funding initiatives
Mysteel Global: Indonesia is working on a plan to raise royalties paid by mining companies in the country’s coal, nickel, copper, gold, silver and tin sectors, according to a public consultation document released by the mining ministry on 8 March.
The proposal aims to enhance government revenue to fund President Prabowo Subianto’s spending plans, including a free lunch initiative for schoolchildren, several media including Reuters reported.
The Energy and Mineral Resources Ministry (ESDM) is considering raising royalty rates for coal and metal producers based on price levels, the document said.
For coal, the ESDM proposed to raise royalty rates by 1 percentage point depending on the domestic price reference HBA, grade and type of mining licence.
Generally speaking, for coal products with a calorific value (CV) no higher than 4,200 kcal/kg GAR, the royalty rate increases from 8% to 9% when the HBA reaches $90/t and beyond, and for those with a CV between 4,200 kcal/kg and 5,200 kcal/kg GAR (5,200 kcal/kg excluded), the rate increases from 10.5% to 11.5% when the HBA reaches $90/t or higher.
The ESDM previously increased the frequency of its issuing of the HBA from once a month to twice a month, updating on the first and fifteenth days, as Mysteel Global reported. For 4,200 kcal/kg NAR coal, which is widely sought-after in the Chinese market, the HBA for the first issuance in March was set at a converted price of $53.36/t.
According to the existing progressive royalty rate calculating method, when the HBA is less than $70/t, the royalty rate is 5% (which the ESDM retains unchanged in this proposal). Miners need to pay 5% of the selling price, which is currently $2.7/t if deals are concluded on par with the HBA.
Likewise, another popular grade 5,000 kcal/kg GAR coal saw its HBA converted at $74.67/t for the first period of March, which doesn’t reach the level of $90/t to trigger the rate increase, so the royalty miners need to pay will continue to follow the existing rate of 8.5%, which is $6.3/t.
The rate-increase plan seems to add almost no additional cost to coal miners, considering the prices are far from the $90/t-threshold for low- and mid-CV cargoes, which accounts for the vast majority in Indonesia’s coal export mix.
For high-CV (exceeding 5,200 kcal/kg GAR) cargoes, the rates stay unchanged at 9.5% (HBA<$70/t), 11.5% (70<=HBA<$90/t), and 13.5% (HBA>=$90/t), according to the document.
However, the proposal may have some substantial impact on metal producers. For instance, the ESDM proposed raising royalties on nickel ore to 14-19%, depending on benchmark price levels, up from the current flat rate of 10%. Similarly, the royalty rate for copper ore could increase to 10-17%, up from the existing flat rate of 5%, with further hikes also being considered for copper concentrate and copper cathode.
It is unknown if or when this royalty rate change will come into force. According to a CNBC Indonesia report, the Director of Mineral and Coal Program Development at the ESDM, Julian Ambassadur Shiddiq, said the ESDM is in final discussions with the State Secretariat, but no specific timeline was given.
In another report by local media Bisnis, Basman Bhaktiar, executive director of the Center for Energy and Mining Law Studies, is quoted as saying that the increase in mineral and coal royalty rates could take effect at the end of this year at the earliest.
Note: This article has been written in accordance with a content exchange agreement between Mysteel Global and BigMint.
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