The Energy and Mineral Resources Ministry has expressed its opposition to granting Indonesian coal miners’ request to relax coal royalty payments amid the COVID-19 pandemic.
The ministry’s director for non-tax state revenue of coal and minerals, Johnson Pakpahan, said on Friday that such relaxations would “disrupt government cash flows” at a time when Indonesia planned to disburse billions of dollars in economic recovery schemes and COVID-19 relief programs.
“If we were to grant a relaxation, it would further burden our economy,” Johnson said during an online discussion.
This year’s expected mining industry revenue is already 21 percent lower than last year’s as a result of falling commodity prices, he said, adding that revenue collection, however, was still on track at 41 percent of the expected Rp 35.93 trillion (US$2.56 billion) as of Friday.
Representatives of two mining industry watchdogs who spoke during Friday’s discussion lauded the ministry’s stance to maintain coal royalty payment terms.
The mining industry is a major contributor to non-tax state revenue for Indonesia, the world’s top coal exporting country. Miners contributed Rp 45.59 trillion to the country’s total non-tax state revenue of Rp 405 trillion last year.
However, Indonesian coal miners began demanding a royalty relaxation in May after it became clear that global coal demand and prices would slump to record lows this year as electricity companies, the largest buyers of coal, cut production amid partial lockdowns in several regions across the archipelago.
Indonesia’s benchmark coal price (HBA) hit $52.98 per ton in June, the lowest since July 2016, ministry data shows. As of Friday, the energy ministry expects coal prices to average between $59 and $61 this year.
Coal miners had asked the ministry to slash royalties and delay payment deadlines by six months. The move would entail calculating royalties using actual sale prices instead of using the government’s monthly coal sales benchmark price (HPB), which is significantly higher.
“Some differences are as high as $5 per ton,” Indonesian Coal Mining Association (APBI) executive director Hendra Sinadia said on May 29, adding that such royalties burdened many miners’ cash flows and finances.
Granting miners a relaxation requires the ministry to amend Energy and Mineral Resources Ministerial Decree No. 1823/2018, which regulates royalty payment terms.
Pegging royalties to actual sale prices, however, brings risks of unfair prices through illicit transfer pricing practices, said Maryati Abdullah of extractive industry watchdog Publish What You Pay (PWYP) Indonesia, one of the two speakers at Friday’s discussion.
“These prices would be hard to verify and thus, projecting state revenue will be difficult,” she said, reiterating the explanation provided by Johnson.
Furthermore, the benchmark sales price is adjusted every month to changes in international coal prices, said Enny Sri Hartati, executive director of the Institute for Development of Economics and Finance (Indef), also one of Friday’s speakers.
“The government does not set HPBs on a whim. There are guidelines,” she added.