Government won?t increase royalty despite recent coal price hike

The government will not increase the royalty tariff of coal miners holding the so-called IUP mining license despite current rising trend in the price of coal.

Director General of Mineral and Coal at the Ministry of Energy and Mineral Resources Bambang Gatot Ariyono said on Tuesday that the increase in coal price is not sustainable as it is likely to undergo correction in the near term. ?There?s no plan yet to increase (the royalty tariff). We?ll see first what will happen going forward,? he told reporters.

The government sets its coal reference price (HBA) for December 2016 at US$101.69 per ton FOB, higher than $84.89 per ton set in November, in line with rising trend in the price of the commodity in the international market. The rise in the coal price was mainly due to production cut in China, and rising demand ahead of winter season.

The government first unveiled plan to increase the royalty tariff of the IUP coal miners in 2014, but decided to postpone the policy last year as coal price tumbled to around $40 per ton. Under the tariff hike plan, the current royalty tariff of low rank coal of 3 percent will be increased to 5 percent, the tariff of medium calorie coal to be increased from 5 to 9 percent, and the royalty tariff of high rank coal from 7 percent to 13.5 percent, equal to the royalty tariff of miners holding the coal contracts of work (PKP2B).

Ministry of Energy and Mineral Resources Spokesman Sujatmiko said on Tuesday that the ministry will not yet increase the royalty tariff as coal price will remain volatile in the near future with possibility of higher production in China.

He said that the ministry?s focus right now is to maintain investment climate in the coal mining sector.

Hendra Sinadia, Deputy Executive Director of the Indonesia Coal Mining Association (ICMA), said that the plan to increase royalty tariff is not relevant right now as the current rise in coal price is not sustainable. He said that the Chinese government is likely to reverse its earlier policy which has led to production cut, which in turn would increase global supply, and undermine coal price. (*)