Coal sector: government plan to impose tax export up to 50% by 2013

Trade minister, Mr Gita Wirjawan, yesterday mentioned about the government plan to impose mineral mining export tax including coal up to 50% by 2013. For the initial plan, Ministry may introduce 15% - 25% tax this year.

The motive behind is to protect national resources from excessive and massive exploitation and to secure domestic supplies. In addition this plan is also to increase Government’s tax income

 In our view it maybe a temporary appeal since previously Mr Harya Adityawarman, secretary of Directorate General of Coal and Minerals at Energy and Mineral Resources Ministry have told to Bloomberg reporter that the suggestion for tax
has not been officially proposed to the cabinet and he thinks that it’s still too premature for imposing such a export tax.

This is not the first time issue happen in Indonesia coal industry as 5% duty on coal export had also been talked about previous years.

 In our view the implementation for such law is not that simple since it contradicts and conflicts to other laws and the government’s contract with coal miners. And a lot of political interest would play important role here in coal industry.

The export tax would not affect those big coal producers especially for CCoW holders of 1st and 2nd Generation like BUMI, ADRO, BRAU, Kideco (INDY) and Indominco (ITMG) since their contract are lex-specialis that exempt from any changes in tax laws.

If this should take effectively to implement, it may hurt CCoW 3rd Generation like HRUM, KKGI and GEMS and IUP holders (ABMM, PTBA) which the tax contracts are based on the prevailing rate.
Based on our sensitivity, 15% export tax may impact earnings in our coverage by around 25-30% on average.