Indonesia’s proposed export tax has Indian power companies scrambling

Indonesia’s proposed tax on mining exports is having a ripple effect on Indian power companies that buy fuel for coal-fired power plants.

Indonesia, with a population of 240 million, is the world’s premier thermal coal exporter, a tin powerhouse and is also rich in gold and copper.

The 25% export tax on coal and other base metals, rising to 50% in 2013, is to stop mining companies from exploiting resources. Reuters quotes a government official explaining the rationale for the tax:

“Ever since we issued a mining law in 2009, miners have reacted by increasing their production multiple times, exploiting and exporting everything they’ve got,” Thamrin Sihite, director general for coal and minerals at Indonesia’s ministry of energy and minerals, told Reuters.

“This is dangerous and we need to curb that. We issued a ministerial regulation in February to ban unprocessed mineral ores and this new export tax regulation…We hope the tax will reduce the export rush further. But I can’t tell you when it will be issued.”

The proposal comes ahead of a raft of mining regulations by the Indonesian government, including a  ban on export shipments of unprocessed metals and low-grade coal after 2014, and Government Regulation No. 24 –  requiring all foreign mining companies to sell majority stakes in their mining operations to locals by the tenth year of production. The former is designed to spur investment in mineral processing, with Indonesia suffering a shortage of smelting capacity.

The Economic Times reports the coal export tax will have Indian power producers looking for cheaper sources of fuel for coal-fired plants:

“It’s a setback for power producers. This will discourage them from taking up projects based on imported coal,” said K Rajagopal, CEO for thermal at India’s Lanco Infratech Ltd, which runs a 1,200 MW plant fuelled entirely by imported coal.

Twelve percent of India’s coal is imported and 70% of those imports come from Indonesia. Last year Indonesia changed the way it prices coal, making nearly 10% of India’s coal-fired capacity unviable, says Economic Times. The  news site also quotes the (Indian) Association of Power Producers saying the export tax could make power unaffordable in India, and lead to a ramp-up in domestic coal production and a greater emphasis on renewable energy sources.