Indonesia To Impose Duties On Coal Exports, Face Up to $11B In Export Earnings Losses

Indonesia, the world's top thermal coal exporter, is looking into implementing duties on its exports of the raw commodity to save more for domestic use, a risk which could mean losing some $11 billion for its national coffers. 

On Monday, Indonesian Energy and Minerals Minister Jero Wacik said the country was looking into imposing levies on coal shipments to regulate the outflow of the mineral and save it for domestic use.

"Indonesia's need for coal will increase strongly, so exports will need to be controlled," Mr Wacik said during the Coaltrans Asia conference held earlier in the week.

But the move has been seen to hurt Indonesia's economy as it could lose some $11 billion earnings from the coal sector.

Rohan Kendall, a senior coal research analyst, said in the same conference Indonesia's coal exports levy proposal will alter and degrade the competitiveness of its coal sector, putting at risk some 68 million tonnes of coal exports a year.

"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."

Although the effects of the proposal, such as price swings, will not be immediately felt, it will nevertheless push the country's foremost buyers, China and India, to check alternative sources that offer cheaper coal, thus still pushing costs in the long-term.

"Indonesia is the biggest supplier of seaborne thermal coal, and if everyone has to pay 20 per cent more to get Indonesian tonnes, it will have a real impact for sure," commodities analyst Lachlan Shaw told Reuters News.

Indonesia, which had actually introduced a progression of directives meant to extract added revenue from its mining industry, had actually so far stayed out of touching the coal sector and its exports.

Coal exports contributed 13 per cent, or $27 billion, to Indonesia's total export earnings last year.

Among the new regulations the government had instituted on its mining industry included controlling foreign ownership of mines and imposing a 20 per cent duty on shipments of unprocessed minerals.

Indonesia's coal production, which boomed in the past decade, has been projected to hit 390 million tonnes in 2012. But state utility PLN said the country needs to begin conserving coal resources before they get depleted.

"We are not the largest in coal reserves but we are the largest exporter of thermal coal. If there is no new exploration, all our coal resources will be finished in 40 years. Indonesia will have no more coal for itself and no more coal left to export," Helmi Najamuddin, PLN's head of coal, told Reuters News.

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