Tracing the Development of Coal Royalty Rates in Indonesia

Coal royalty rates in Indonesia have changed over the past two decades.

Coal royalties are part of Non-Tax State Revenue (PNBP), which is central government revenue derived from the utilization of natural resources.

Government Regulation (PP) Number 45 of 2003 set the coal royalty rate at 2% to 7% of the coal selling price per ton, depending on the coal's calorific value.

Subsequently, PP Number 81 of 2019 maintained the royalty rate but revised the tariff classes based on coal calorific value.

While in 2003, the 7% rate applied to open-pit coal >6,100 Kcal/kg, in 2019, this rate was applied to lower-quality open-pit coal, namely >5,700 Kcal/kg.

Shortly after, in 2022, the government increased the coal royalty rate to 4% to 13.5%, and again revised the tariff classes based on calorific value.

Starting in 2022, the government also implemented a progressive royalty system based on the coal reference price (HBA). This means that if the market price of coal is high, the royalty rate increases, and vice versa.

That same year, the government also granted a zero percent royalty rate for coal producers engaged in downstream processing. This is stipulated in Article 3 paragraph 1 of PP Number 26 of 2022, which reads:

"Mining Business License holders for Production Operations, Special Mining Business Licenses for Production Operations, and Special Mining Business Licenses as a Continuation of Contract/Agreement Operations that conduct value addition of coal may be given specific treatment in the form of a 0% (zero percent) royalty levy on the volume of coal, considering energy independence and the fulfillment of industrial raw material needs."

The zero percent royalty for coal downstream processing was further emphasized in the Job Creation Law Government Regulation in Lieu of Law (Perppu) signed by President Jokowi on December 30, 2022.

Article 39 paragraph 1 of the Job Creation Perppu, which inserts Article 128A into Law Number 3 of 2020, states:

"Specific treatment regarding the state revenue obligations as referred to in paragraph (1) for coal Development and/or Utilization activities may take the form of a 0% (zero percent) production levy/royalty."

Here is a summary of the development of coal royalty rates in Indonesia from 2003-2022:

PP Number 45 of 2003

* Open-pit coal:
* ? 5,100 Kcal/kg: 3% royalty rate
* > 5,100-6,100 Kcal/kg: 5%
* > 6,100 Kcal/kg: 7%
* Underground coal:
* ? 5,100 Kcal/kg: 2%
* > 5,100-6,100 Kcal/kg: 4%
* > 6,100 Kcal/kg: 6%

PP Number 81 of 2019

* Open-pit coal:
* ? 4,700 Kcal/kg: 3% royalty rate
* > 4,700-5,700 Kcal/kg: 5%
* ? 5,700 Kcal/kg: 7%
* Underground coal:
* ? 4,700 Kcal/kg: 2%
* > 4,700-5,700 Kcal/kg: 4%
* ? 5,700 Kcal/kg: 6%

PP Number 26 of 2022

* Open-pit coal:
* ? 4,200 Kcal/kg:
* HBA < US$70: 5% royalty rate
* US$70 ? HBA ? US$90: 6%
* HBA ? US$90: 8%
* > 4,200-5,200 Kcal/kg:
* HBA < US$70: 7%
* US$70 ? HBA ? US$90: 8.5%
* HBA ? US$90: 10.5%
* ? 5,200 Kcal/kg:
* HBA < US$70: 9.5%
* US$70 ? HBA ? US$90: 11.5%
* HBA ? US$90: 13.5%
* Underground coal:
* ? 4,200 Kcal/kg:
* HBA < US$70: 4%
* US$70 ? HBA ? US$90: 5%
* HBA ? US$90: 7%
* > 4,200-5,200 Kcal/kg:
* HBA < US$70: 6%
* US$70 ? HBA ? US$90: 7.5%
* HBA ? US$90: 9.5%
* ? 5,200 Kcal/kg:
* HBA < US$70: 8.5%
* US$70 ? HBA ? US$90: 10.5%
* HBA ? US$90: 12.5%
* Coal Downstreaming: 0% royalty rate