By The Jakarta Post
The Finance Ministry has turned down the idea of providing a fiscal incentive to the country's coal mining industry which is now mostly facing financial difficulties due to the continued drop in coal prices.
“The royalty we receive from the coal mining industry is still small. There is no way for us to provide tax incentive for them,” Finance Ministry interim fiscal agency head Bambang Brodjonegoro said.
The idea of providing tax incentive to coal mining companies came from Deputy Energy and Mineral Resources Minister Rudi Rubiandini, who said last week that the government would need to provide fiscal incentives to ease coal miners’ financial hardship if coal price continued to fall.
He promised that the government would provide the tax incentive if the coal price continue to fall and reached US$60 per tonne (Bt1,800).
As of late last month, Indonesia’s coal reference price (HBA) fell to $84.65 per tonne, declining 3.4 per cent from $87.56 in July and 25 per cent from its high of $112.87 in March.
Some of the country’s major coal producers have revised their annual target due to the declining coal prices.
For example, PT Adaro Energy, the nation’s second-largest thermal coal producer, has revised its annual production target for 2012 to between 48 million and 50 million tonnes, down from 50 million to 53 million tonnes.
PT Berau Coal Energy, a subsidiary of London-listed Bumi, said it would also lower its production forecast to 20 million and 22 million tonnes, down from 23 million.
Institute for Essential Services Reform energy and mining expert Fabby Tumiwa said that he could not comprehend Rudi’s reasoning to provide tax incentives to the coal mining industry.
“The coal mining industry is a mature industry with a production of 350 million tonnes per year ... Over 8,000 licences have been issued for coal companies. With these kinds of condition, I do not see any reason for the industry to receive a tax incentive,” Fabby said.
“If the main reasoning is the declining coal price rates, then it is not a good enough reason for the tax incentive. Commodity price fluctuates regularly and there is no need for the government to interfere in this commodity market mechanism,” he added.
“I believe what the government needs to do right now is to increase royalty from the coal mining industry because as of now, this industry’s royalty contribution has not yet been able to compensate the natural resource damages caused by massive coal exploitations,” he said further.