Indonesia shapes royalty exemption for downstream coal

Indonesia's energy ministry (ESDM) has drafted initial regulations setting out the legal framework for implementing a royalty exemption for coal producers entering into the downstream coal industry.

The regulation was drafted in response to the omnibus job creation law passed earlier this year that amends the 2020 mining law. Under the regulation, all coal producers will be eligible for consideration of a royalty exemption if they carry out coal development or utilisation activities. But the royalty exemption will only apply to the amount of coal produced that would be used for downstream purposes, not all a company's output. Applications for the exemption will be handled by the ESDM and Indonesia's finance ministry to avoid conflicts of interest and ensure the government still receives revenues from the industry.

The ESDM has not yet outlined which downstream industries coal companies can operate in to be eligible to apply for the royalty exemption. The mining law breaks down the coal downstream sector into four areas — the manufacturing of coke, coal liquefaction, coal gasification and the use of coal in mine-mouth power plants whose output is connected to the national transmission grid and used by the public.

The Indonesian coal mining association (APBI) has welcomed the drafting of the new regulations, saying that it will help boost investment in Indonesia's emerging downstream coal industry. One of the main obstacles has been raising investment in the downstream coal industry because of the need for significant capital. The royalty exemption could help to soften the financial blow for companies that opt to expand into this industry, the APBI said. The group is currently reviewing the draft regulations and will present its findings to the ESDM once public deliberations begin, it said.

State-owned coal producer coal Bukit Asam earlier this year signed an agreement with state-owned oil firm Pertamina to supply methanol produced from coal through a planned joint-venture coal gasification project owned by the two state-owned companies. Bukit Asam must deliver 1mn t/yr of methanol to Pertamina for two years under the terms of the supply contract. The methanol sold will be used to help cut down on the country's imports, Bukit Asam said in March.

By Antonio delos Reyes