The Indonesian Coal Mining Association (APBI) urged the government to drop the 5 percent duty on coal exports as it had placed a "huge burden" on the country's coal producers.
"The export tax should be terminated because it increases the burden on coal producers at a time when they are facing rising production costs, particularly on the fuel and wages fronts," said APBI executive director Soedjoko Tirtosoekotjo on Thursday.
He said that fuel and labor costs were the two biggest components in the coal production cost structure.
Soedjoko explained that the export duty had created uncertainty in the coal industry and reduced the country's coal exports.
"A review of the policy conducted by APBI clearly shows that it is not attractive to investors and pushes costs higher, which lessens the competitiveness of Indonesian coal on international markets," he explained.
He said that the policy was also discriminatory as not all coal producers were subject to the export duty.
He pointed out that coal producers that held the so-called first generation contracts (contracts signed with the government in early 80s), were entitled to have the duty reimbursed.
"Around 75 percent of Indonesia's coal exports come from producers with first generation contracts, and they are entitled to the reimbursement of all taxes not provided for in their contracts."
"However, the coal producers that are subject to the export duty are those with second generation contracts and others, most of which are companies with small-scale mining operations producing low-quality coal compared to the producers with first generation contracts," Soedjoko said.
According to APBI calculations, with the reimbursement facility for coal producers with first generation contracts, the government raised only around Rp 300 billion (US$34.28 million) in revenue per year from the duty, which was described by Soedjoko as not being worth it compared to the "damage" caused by the duty.
"So why do we have to maintain the policy, especially given that the government itself is still confused about which base export price should be used," he said, adding that APBI had recently filed for a judicial review of the policy with the Supreme Court in a bid to secure the lifting of the duty, which was introduced last year.
APBI was also concerned that as the export duty increased costs, some companies might be tempted to lower operating costs by reducing the stripping ratio, that is, by focusing mainly on the mining of coal located near the surface.
PT Jorong Barutama Greston, a second generation coal miner in South Kalimantan, said it had suffered higher production costs because of the duty.
"This duty has created a huge additional cost burden for Jorong," said Leksono Poeranto, deputy director of Banpu Indonesia, the owner of Jorong.
He pointed out that the price of Jorong's coal was only around $18 per ton, but it had to pay an export duty of $1.7 per ton, which was effectively a tax of more than 9 percent.
Indonesia is the world's second largest thermal coal exporting country. In 2004, the country exported a total of 115 million tons of coal.
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