(EnergyAsia, June 7 2012, Thursday) — Indonesia could lose as much as US$11 billion a year if the government proceeds to impose a controversial tax on the country’s thriving thermal coal exports, said research consultant Wood Mackenzie.
While Indonesia will likely remain the world’s largest seaborne thermal coal exporter through 2020, it will lose much of its competitiveness against other producing countries as a result of the tax that will affect up to 68 million tonnes of coal sales to other countries, said Wood Mackenzie’s senior coal research analyst, Rohan Kendall.
“Indonesian cash costs have doubled since 2006. This was not an issue while coal prices were rising but now that prices have softened it is important to constrain costs to keep projects viable. Even without the imposition of an export tax,
Indonesian coal producers may find it difficult to prevent a continuation of cost increase imposition but additional taxes will further exacerbate cost hikes,” he told delegates at this week’s Coaltrans Asia 2012 event in Bali, Indonesia.
At the same event, Indonesian Energy and Minerals Minister Jero Wacik said his government was looking into taxing coal exports to encourage the miners to upgrade the product as well as reduce external sales in favour of domestic consumption.
“Indonesia’s need for coal will increase strongly, so exports will need to be controlled,” Mr Wacik said at the start of the three-day conference on Monday.
According to Wood Mackenzie, Indonesia already has one of the highest tax and royalty rates among coal exporting countries equivalent to approximately 20% of a miner’s revenue.
The proposed export tax will add an average US$19 a tonne to Indonesian coal production, boosting overall cash costs by 36%.
Mr. Kendall said: “An Indonesian export tax would have a larger effect than the combined impact of Australia’s minerals resource rent tax (MRRT) and carbon tax, which we estimate will decrease the value of the Australian coal industry by US$9 billion.”
He expects the tax will render unprofitable all exports of low-rank coal as it already is weighed down by low margins due to their low calorific value and high moisture content. Also, the tax will affect companies holding mining permits that focus on producing low-rank coal but not contract-of-work (CoW) permit holders who are exempt from paying any import or export taxes.
In addition, Indonesia will be face rising costs at much of its future greenfield mines in South Sumatra and the Wahau coal field in East Kalimantan. The new mines are located away from the coastline and rivers, thus raising the logistic costs as they cannot be served by barges.
Mr Kendall said the coal from the South Sumatra and Wahau deposits also contain cheaper low energy coal that will be confined to being exported mostly to China and India.
If Indonesia wants to maintain its position as the world’s largest coal exporter, it will have to hold down cost.
“An export tax on top of already increasing costs will jeopardise the viability of a significant volume low-rank coal exports,” he said.