Govt plans to tax coal and gas to curtail export

Rendi A. Witular, The Jakarta Post, Jakarta

The government is considering applying fiscal and non-fiscal measures to secure a supply of gas and coal for the domestic market as part of the country's efforts to reduce its dependency on oil as the main source of energy.

Minister of Energy and Mineral Resources Purnomo Yusgiantoro said the government was studying the possibility of imposing fiscal barriers for coal and gas, which would include attempts to impose high export tariffs on the products, or provide tax incentives for suppliers willing to sell their products on the domestic market.

"During a limited Cabinet meeting, the government agreed to take fiscal measure to discourage coal and gas suppliers from exporting their products, and persuade them instead to sell them on the domestic market," he said on Tuesday at the State Palace.

Purnomo, however, said the plan to impose an export tax for gas would have no impact on existing contracts between the government and several global gas buyers.

The fiscal measures for gas and coal would be taken to help reduce the country's dependency on oil amid declining reserves and output, in addition to the current high prices on the global market.

Indonesia's crude oil net exports dropped to 30,000 barrel per day (bpd) in 2004 compared to 100,000 bpd in 2003.

The Central Statistics Agency (BPS) said oil and gas imports -- including both crude oil and oil products -- increased sharply by 52.36 percent in 2004.

The increase was due to declining oil output from the country's aging oil fields and rising domestic demand of up to 7 percent per year.

The government is planning to gradually cut the use of oil to 30 percent of the country's total energy use in 2025, with the use of gas and coal to make up the remaining 60 percent while another 10 percent for other energy.

At present, 60 percent of the country's energy comes from oil.

Purnomo, however, said the decision to impose the fiscal barriers would be made after the Ministry of Trade completed its legal study of the plan to avoid violating trade regulations set out by the World Trade Organization (WTO).

"The plan is still subject to a legal study. We fear that if we rush to impose an export tax, we could end up violating the WTO rules," he said.

Aside from the fiscal barriers, the government will also provide incentives for gas producers in building new plants and transmission infrastructure in the country, in order to fully develop the untapped resources.

Purnomo, however, refused to elaborate on the incentives.

At present, Indonesia has a gas reserve of up to 60 years, while coal is estimated to have a reserve of 150 years.

Elsewhere, Purnomo said the government was planning to include costs for managing the environment by gas and coal companies into the production costs, in order to ease the financial burden of the companies, while, at the same time, ensuring environmentally friendly management.