Coal export duty hurting investment: Association

Leony Aurora, The Jakarta Post, Jakarta

The recently imposed 5 percent export duty on coal will not yield significant revenues for the government and will deter future investments in the sector, coal miners and a government official say.

While the firms that acquired the first generation contracts to exploit coal could reclaim the export duty, as most contracts stipulate that miners would not be affected by any new duties and taxes, the tariff would also create problems, Indonesian Coal Mining Association chairman Jeffrey Mulyono said on Wednesday.

"The export duty will only be a source of disputes surrounding the reimbursement process, although (legally) most of our members will not be affected by this policy," Jeffrey said.

"New investors will be discouraged, seeing how easily regulations can change here," he added.

The Ministry of Finance issued a decree on Oct. 11, stipulating that all coal exports would be charged a 5 percent duty based on free-on-board prices. The decree is effective immediately.

Jeffrey said neither the association nor Berau Coal, the company he led, had received a copy of the decree.

The new export duty requires the Ministry of Trade to create a collection mechanism. Trade minister Mari Pangestu has reportedly said her department would coordinate with the Ministry of Energy and Mineral Resources over the matter.

However, the energy ministry's director general of geology and mineral resources, Simon Sembiring, said that there had not been any communication between the two departments. "I don't know if the respective ministers have discussed this," Simon said.

"We had already stated that we oppose such an export duty in a previous meeting with the finance ministry."

The policy would bring some Rp 300 billion (US$30 million) into state coffers. It would also lead to discrimination between first generation contractors and smaller ones to whom the duty is applicable, as well as between coal producers and other miners, Simon said.

"The (negative) consequence is bigger than the revenue to be received," he added.

The country exports some 70 percent of its coal -- mostly thermal coal used to generate power -- to Japan, Taiwan, South Korea, India and China. This year's production is predicted to reach 155 million tons, and with the current high prices, the association has estimated next year's total will rise 12 percent to 175 million.

Jeffrey said that if concerns about domestic supplies were the reason for the export duty, the government could apply a domestic market obligation, as was proposed by the association in July.

"If coal prices abroad are good, contractors will still export the goods, export duty or not," he said.

Simon said the domestic market needed only 30 percent of the country's coal production. "There's no lack of supply. The demand is only so high here," he said.

In a plan drafted by the energy ministry, coal usage is targeted to rise from 11 percent of the total fuel used to produce energy at present to 38 percent in 2020.