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Indonesia coal royalty hike to cost jobs, increase illegal mining -industry group

Indonesia’s plans to ramp up coal royalties next month will cost 150,000 jobs and lead to a rise in illegal mining activities, the head of an industry group told Reuters in an interview.

The world’s top exporter of thermal coal is looking to increase revenues from its mining sector this year, but its plans to roughly double coal royalties are expected to hurt smaller companies producing low-quality grades.

Coal producers are already under pressure from a slump in prices. Benchmark thermal coal at Australia’s Newcastle Port has lost about 60 percent of its value since early 2011, dropping to some of its lowest levels since 2007.

“It is a surprise that during difficult times they are increasing taxes,” Pandu Sjahrir, chairman at the Indonesian Coal Mining Association told Reuters.

The government is aiming to implement the royalty hike in May, he said, adding that most of the job losses would come in Kalimantan, the Indonesia portion of the island of Borneo and home to some of its largest coal mines.

Potential job losses from the royalty hike would be taken into consideration, said mine ministry official Gultom Guska, who added that a tightening of coal port rules would help combat illegal mining.

Much of Indonesia’s illegally mined coal is loaded out of small docks, and to stamp out this practice and monitor output, the government is considering limiting coal exports to 14 ports throughout the island chain, Sjahrir said.

Last year, coal output from illegal mines was 75 million tonnes, worth an export value of $2.5 billion and representing up to $500 million in lost government revenue, said Sjahrir, who is also a director at Toba Bara Sejahtera .

Indonesia’s coal output is seen flat at 450 million tonnes this year, he said, with exports at 340 million-350 million tonnes, down from 360 million-380 million tonnes last year.

The exports will be pulled down by rising domestic demand and slower growth in world biggest coal consumer China, although India will make up some of the lost demand, Sjahrir said.

Indonesian President Joko Widodo has set an ambitious target of building 35,000 megawatts in additional power capacity by 2019, with the majority of the new plants being coal-fired.

Sjahrir, who sees coal prices averaging this year around $60 a tonne, the lowest in nine years, said Indonesia’s power plans will be crucial to supporting global coal markets.
Source: Reuters