Govt plans to trim royalty as incentive for coal development

The government plans to slash coal royalty from the present 13.5 percent to around seven percent as a special incentive for coal contractors who develop low rank coal, Bisnis Indonesia reported Tuesday.

The government?s renewed policy on coal royalty is expected to turn into a government regulation by the end of this year following the completion of the study on the plan by a special team at the Energy and Mineral Resources Ministry.

The directorate general of minerals, coal and geothermal at the energy and mineral resources ministry said that the new policy would first be consulted with coal contractors.

?We will give the incentive to boost the utilization of low rank coal especially for holders of coal contract of work (PKP2B). (The percentage of coal royalty payable) is at least comparable to that of royalty payable by holders of a mining contract. This will definitely be attractive to investors eager to develop coal liquefaction or coal gasification that requires relatively bigger investment,? said Bambang Setiawan, director for mineral, coal and geothermal development at the energy and mineral resources ministry following a seminar on Coalaboration 2006.

He reminded, however, the incentive would only intended for contractors who develop low rank coal. The royalty payable by contractors of high coal calories remains unchanged, at 13.5 percent, he said.

Meanwhile government is studying the possibility of building a coal-based crude oil refinery that needs an investment of between US$3 and $5 billion. The construction of the refinery is in parallel with the government?s program to produce synthetic oil from coal, Investor Daily reported Tuesday.

The synthetic oil is produced from coal with calorie less than 5.100 kkal (low rank coal/LRC) thanks to coal liquefaction method.

However, the government has yet to announce when the construction of the refinery will commence.

An expert staff at the Energy and Mineral Resources Ministry Lobo Balia said in Jakarta Monday that the plan (to build the refinery) was under intensive study. "We will see the efficiency it offers. It seems that it will have big capacity considering that one ton of coal can produce two barrels of crude oil,? he told reporters. (*)