Indonesian coal producers facing increasing costs

Despite the increasing coal production growth Indonesian coal producers had enjoyed for almost a decade, Indonesian coal producers are faced with narrowing of the cash-operating margin due to increasing costs, a company executive said.

?Over the last two years Indonesian coal producers have had to absorb increased costs arising from several factors ranging from VAT exclusion, the tripling of diesel fuel prices and the rapid escalation of labor costs,? said Kenneth Farrell, president of South Kalimantan based coal mining firm PT. Arutmin Indonesia.

Government had exempted coal from value added tax (VAT), making Indonesian coal producers unable to credit the VAT which they pay for services and goods they procure. Last year the government also decided that coal producers must pay fuel at international prices.

?In 2001 alone, labor costs had increased by 38 percent,? said Farrell in a conference organized by Coaltrans in Bali this week.

?As Indonesian mining contractors charge for their services in US dollars, Indonesian coal producers have not been able to gain from the local currency devaluation unlike their competitors in Australia or South Africa,? he added.

He, however, did not reveal the percentage of cost increase caused by the above factors, but a coal executive said that fuel cost alone had increase the cost by almost 10 percent.

Farrell said for the industry to survive and to grow it was essential for Indonesian exporters to protect their export prices and at the same time instigate productivity improvement at the mines. (alex)