Indonesia’s royalty scheme to drive new coal investment away: report

The government will impose a 28% rate when the coal benchmark price goes over $100/tonne.

Indonesia’s new royalty scheme with a 28% rate imposed when coal’s benchmark price goes over $100 per tonne is expected to drive away investment in adding new coal capacity, a report found. 

The average coal benchmark price, otherwise known as Harga Batubara Acuan (HBA), for January to May 2022 is now at $222 per tonne, triggering the government to apply the higher royalty rates. 

“The new royalty scheme of 14-28%, higher than the previous 13.5%, is likely to discourage new coal capacity investment further,” Ghee Peh, an energy finance analyst for the Institute of Energy Economics and Financial Analysis, said.

“Together with their combined US$6.8 billion cash balance, the time is ripe for Indonesian coal companies to accelerate their transition.”

Read more: Coal companies' cash balance could fund Indonesia’s green transition

The IEEFA found that in 2021, eight Indonesian coal companies invested in infrastructure focused on new coal-related projects. Despite this, Peh said the IEEFA sees the acceleration of energy transition. 

“While Indonesian coal companies have become one of the biggest beneficiaries of coal price hikes, we recommend further coal divestment and transition acceleration out of the high realized coal prices, net profits and operating cashflows for 2021 and 1Q22,” Peh said. 

According to the Peh, ABM Investama has boosted its coal volumes through new coal mine acquisition plans, whilst the PTBA has outline plans for a downstream coal dimethyl ether plant.