Royalty Hike Threatens Coal Issuers
10 April 2014 13:16 WIB
TEMPO.CO, Jakarta - The government's plan to raise the royalties for coal mining business licenses (IUP) is projected to slam the performances of coal companies. Capital market analysts from Trust Securities, Reza Priyambada, said that a royalty hike burden issuers. He suggested postponing the implementation of the policy after commodity prices improved.
Based on data from the Ministry of Energy and Mineral Resources, the coal reference price for the spot market as of April 2014 is US$74.81 per metric ton, down from March's US$77.01 per metric ton. The downtrend in coal market prices has been going since June 2012.
The government plans to increase coal royalties through the revision of Regulation No.9/2012 on non-tax state revenues. For IUP holders, royalties will be quoted at 13.5 percent from the previous three to seven percent—depending on the coal calories. The rules also apply to the Coal Mining Businesses Work Agreement (PKP2B) holders.
According to Reza, the royalty hike will push up production cost, resulting in an increase in expenses and threatening profits to plummet. The worst impact is cost efficiencies that will lead to massive layoffs.
KSK Financial Group head of research, David Cornelis, predicted that five percent of the total number of listed companies in the Indonesia Stock Exchange (IDX) will be affected by this policy. He advised coal companies to cutback on expenses and reorganize internal sales strategy.
Even so, David said there is a positive side to the hike. Government revenues will rise from seven-year arrears royalty payments amounting to some Rp1 trillion.
By raising royalties, the government will get an additional Rp3.5 trillion outside the coal export tax. "Indonesia's royalty rates are still relatively cheaper compared to other countries, but the increase may be periodic," said David again.
Analyst from Investa Saran Mandiri, Kiswoyo Adi Joe, said the royalty hike plan will have a positive impact on the coal industry, specifically in securing coal supply.
The hike will also lower exports volume and guarantee the supply for the domestic market.
FAIZ NASHRILLAH | ANANDA PUTRI | BERNADETTE CHRISTINA | AYU PRIMA SANDI
