Indonesia's export tax will hurt coal miners

Indonesia's coal export tax would put at risk upto 68 million tones per annum (mtpa) of Indonesian coal exports and US$11billion of the industry's value, according to Wood Mackenzie's expert.
 Rohan Kendall, a coal rearch analyst of the global energy research consulting firm, said during his presentation at Coaltrans Asia 2012 today that while Indonesia will likely remain the largest seaborne thermal exporter up to 2020, the introduction of the export tax could cause Indonesia to lose competitiveness compared to other  major supply regions.
 Indonesia's Energy and Minerals Minister Jero Wacik said on Monday the country needed to conserve coal for domestic use but gave no details on the scope or time frame of any curbs.
 Thailand's Banpu, which operates five coal mines in Indonesia, also suffered from this plan. At noon today, its share price at Bt440 was down 2.2 per cent. At one point in the morning trading session, it slid to Bt436, the lowest since November 2009.
 "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,” Kendall of Wood Mackenzie said.
 According to the research house, the Indonesian government is already one of the highest tax and royalty rates for coal exporting countries with approximately 20 per cent of coal producer’s revenue flowing to the government. If an export tax is applied to coal producers, the cash costs of affected mines will increase by an average of US$19/tonne. This translates to an estimated 36 per cent increase in cash costs.
 Noting that the tax will erode the competitiveness of Indonesian mines, Kendall says, “An Indonesian export tax would have a larger effect than the combined impact of Australia’s minerals resource rent tax (MRRT) and carbon tax, which we estimate will decrease the value of the Australian coal industry by $9 billion.”
 Under the new rule, low-rank coal - with low energy and high moisture content - would be affected the most due to the narrowest operating margins.
 Wood Mackenzie noted that even without the export tax, Indonesia will experience increasing costs because much of Indonesia’s future coal production will be from greenfield areas in South Sumatra and the Wahau coal field in East Kalimantan. These new production areas are located away from the coast and away from rivers suitable for coal barges to navigate, which will increase transport costs. South Sumatra and the Wahau coal field also contain very low energy coal, which means cash costs are inflated when looked at on an energy adjusted basis
 “China and India will continue to ensure strong growth in coal demand. But for Indonesia to maintain its position as the world’s largest coal exporter it will need to ensure cost increases are manageable. An export tax on top of already increasing costs will jeopardise the viability of a significant volume low-rank coal exports," Kendall noted.