T

he Finance Ministry has turned down the idea of providing a fiscal incentive to the country’s coal mining industry which are 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 told reporters Friday.

The idea of providing tax incentive to coal mining companies came from Deputy Energy and Mineral Resources Minister Rudi Rubiandini, who said Thursday that the government would need to provide fiscal incentives to ease coal miners’ financial hardship if the coal price fall continued.

He promised that the government would provide the tax incentive if the coal price continue to fall and reach US$60 per ton.

As of late last month, Indonesia’s coal reference price (HBA) fell to $84.65 per ton, declining 3.4 percent from $87.56 in July and 25 percent 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 metric tons, down from 50 million to 53 million tons.

PT Berau Coal Energy, a subsidiary of London-listed Bumi Plc., said it would also lower its production forecast to 20 million and 22 million tons, down from 23 million tons.

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 tons per year ... Over 8,000 licenses 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.

As of now, the state only receives around 13 percent of royalty from the coal mining industry’s total production. Based on the Supreme Audit Agency (BPK) audit data issued in April, the country suffered Rp 428 billion ($45.03 million) of coal royalty losses in 2011.

Fabby also said that the government also needed to better manage the coal mining industry in the country to prevent over-exploitation rather than pampering mining corporations using incentives.

“We need to have a coal export moratorium as soon as possible because currently, our reserve is depleting fast,” he said.

With the current production rate, Indonesia’s coal reserve, which stands at around 28 billion tons, could run out in around 20 years.