Confusion lingers over Indonesian export taxes

Earlier this month Reuters reported that Indonesia is mulling plans to slap export taxes of 25% on coal and base metals this year and as much as 50% in 2013. The measures are being contemplated as part of an effort to prevent miners from trying to export greater quantities of material before a 2014 ban on shipments of some unprocessed metals kicks in, the news agency said.

Indonesia’s ban on ore exports—announced in 2009—seeks to encourage the processing of ore domestically into higher-value products and to curtail uncontrolled smaller mines that may be exporting material illegally and aren’t large enough to warrant their own processing facilities. (According to Reuters, Indonesia is home to the second-biggest copper mine in the world but has only one copper smelter and the shortage of processing plants is the same in many other metals.)  

On Apr. 4 Reuters quoted the director general for coal and minerals at the Ministry of Energy and Mineral Resources, Thamrin Sihite, as saying that: “Ever since we issued a mining law in 2009, miners have reacted by increasing their production multiple times, exploiting and exporting everything they’ve got. This is dangerous and we need to curb that. We issued a ministerial regulation in February to ban unprocessed mineral ores and this new export tax regulation … We hope the tax will reduce the export rush further. But I can’t tell you when it will be issued.”

The news agency also reported that uncertainty about the regulations is forcing some coal buyers to start looking elsewhere for supplies.   

But Isnaputra Iskandar, an analyst at Nomura Equity Research in Jakarta, says the likelihood that the government will actually implement an export tax on coal is “limited” and that the proposal has not yet been discussed among the various ministries.

“The government has confused the industry by saying that the export tax would be applied to coal as well, while the main aim of the export tax has generally been to avoid overexploitation of mineral ore exports ahead of 2014,” he writes in a research note to clients.

Iskandar argues that the regulatory context for coal mining is different from that for base metal mining. “The export tax on non-coal mining aims to prevent overexploitation of ore mining exports ahead of 2014 when miners will only be permitted to export processed metals,” he explains. “The situation is different for coal mining because the government has not formalized the coal export ban, and as such there is no need to impose an export tax on coal in our view.”

Discussions on whether to invoke a ban on coal exports remain ongoing, he confirms, adding that the government must first make a decision on whether to include coal exports under its 2014 ban on base metal exports before it places an export tax on the commodity.

The analyst adds that the coal industry is a significant sector in the Southeast Asian nation’s economy. Indonesia is the world’s largest thermal coal exporter, he says, and last year exported 302 million tons of coal—about 53% of all Asian coal imports and 36% of all global imports of the commodity.

“The coal export tax we believe would make the current mine plans look unprofitable and pus coal companies to review them in general and possibly postpone their expansion plans in particular,” he reasons, adding that the implications on coal contractors and heavy equipment suppliers would also be significant.