Banpu

Banpu Plc
 

What’s new? Reuters yesterday reported that Indonesia is planning to tax coal and mineral exports. Hoever, the Director-General of Coal and Minerals at the Energy and Mineral Resources Ministry told reporters today in Jakarta that the Industry Ministry’s suggestion for a tax hasn’t yet been officially proposed to the cabinet, so it would be premature to say that there’s a plan to impose a tax.
Our thoughts—no impact on BANPU: In our view, the Industry Ministry’s suggestion for an export tax probably involves raw minerals—copper, nickel and aluminum—rather than thermal coal, due to a prevailing supply shortfall of minerals for domestic use. Note that in Sept 2006, Indonesia’s Supreme Court struck down as unconstitutional two executive decrees that imposed a 5% levy on coal exports (the tax was imposed in Dec 2005). As such, we don’t think the aforesaid export levy on coal will be re-imposed.
Coal contracts shielded from additional taxes: Even if it were to be re-imposed, under the CCOW structure, BANPU would not be impacted by additional taxes. The firm has only two tax obligations—corporate tax (30%) and royalties on sales (13.5%). The contract protects the firm from any regulatory changes, particularly with regard to the tax regime.     
Action: We don’t think the aforesaid export levy, assuming it is even imposed, would fundamentally affect BANPU’s profitability. However, the fact that it is being mooted will probably generate negative sentiment toward coal industry players in Indonesia, so BANPU’s share price performance may be dampened in the short-term—BUY on dip!