By Fergus Jensen
JAKARTA | Tue Oct 1, 2013 5:05pm EDT
(Reuters) - Indonesia may be the
world's top exporter of thermal coal, but that masks an embarrassing fact for a
government scrambling to raise revenue - more than $5 billion worth of the fuel
is mined illegally and goes untaxed each year.
Export and consumption data shows
Indonesia produces around 12-15 percent more coal annually than the ministry of
energy and mineral resources reports. That's enough to supply Taiwan, the
world's fifth-largest coal importer, for a year.
The $460 million of lost tax revenue
that industry officials estimate this represents would provide Jakarta, which
is considering roughly doubling royalties paid by coal producers, with some of
the funds it needs to redress its budget deficit.
The gap between recorded and actual
output has also attracted the attention of Indonesia's top anti-graft agency
the Corruption Eradication Commission (KPK).
A combination of export data from
the Bureau of Statistics, using customs information, and consumption data from
state electricity utility Perusahaan Listrik Negara PLNEG.UL, shows Indonesia's
total coal output at 451.9 million tons in 2012.
That is 56 million tons higher than
production estimates from the energy ministry, which gathers its information
from licensed companies and regional authorities.
"The question we've always
asked is: 'where's the missing 50-to-60-something million?'" said Pandu
Sjahrir, commercial committee chairman for the Indonesian Coal Mining
Association, which represents 125 coal firms including PT Adaro Energy
(ADRO.JK) and PT Berau Coal (BRAU.JK).
Indonesia's government pegged the
average benchmark coal price in 2012 (HBA) for its coal at $95.48 per ton last
year, which would mean the missing 56.3 million tons is worth $5.4 billion.
In a global context, 60 million tons
of thermal equates to around 6-8 percent of total global seaborne trade this
year, based on analysts' estimates of 800-950 million tons.
"That's probably a year or
two's demand growth," said Tom Sartor, an analyst with Morgans
Stockbroking in Brisbane.
"MOUSE PORTS"
The data discrepancy dates back to
Indonesia's decentralization of the mining sector in 2004, when control over
mineral resources shifted to regional administrations, said Xavier Jean, credit
analyst at Standard & Poor's.
"Regencies and provincial
governments and so on suddenly had so much power to grant licenses so it became
difficult to keep pace with what's going on with this part of the market,"
Jean said.
Industry and government officials
said the discrepancy was due to illegal mining and patchy supervision of the
coal industry by the energy and mining ministry.
The government's official position
is that the gap is a reflection of how widespread illegal mining is in
Southeast Asia's largest economy.
"So where is the leak? As we
have said, it's from mining without permits with (coal shipped through) what is
known as mouse ports," Thamrin Sihite, a director general at the ministry,
said earlier this month. Mouse ports are small docks used to load boats with
illegally mined coal.
A KPK spokesman said the anti-graft
agency was investigating the loss of state revenue from illegal coal mining.
The government is considering
restricting coal loading to certain ports in an effort to stop illegal
shipments, a ministry spokesman said. But enforcing the proposed regulation
could prove difficult, if not impossible, for a country comprising thousands of
islands.
During boom times for producers,
when the coal price was higher, the discrepancy was largely overlooked. But the
problem has been thrown into relief with the coal price near a four-year low
and Indonesia's weakening currency piling pressure on the government to address
fiscal and current account deficits.
"Everyone still remembers the
boom years when we created so much wealth in such a short amount of time. The
question is why didn't we tax more back then?" Sjahrir said.
Jakarta is considering raising
royalties on coal output to 13.5 percent from 5 to 7 percent now, although it
delayed the planned rise to early 2014 from this year. The government has also
ditched plans to impose an export tax.
Miners, already battered by falling
prices and weakening demand from top buyer China, say rising royalties could
force some firms to stop producing.
Coal is Indonesia's largest
export-earner, with around $2 billion worth shipped abroad each month.
Raising royalties could backfire and
drive more production underground, said Sjahrir, with negative consequences for
both the fiscal and current account deficits.
"My worry is that we will see
more mining that we cannot register. There would still be excess supply,"
he said. "The export numbers would still be big and there would be less
income to the government. That's my biggest fear."
($1 = 11,485 rupiah)
(Additional reporting by Adriana
Nina Kusuma in Jakarta and Rebekah Kebede in Perth; Writing by Randy Fabi;
Editing by Simon Webb and Alex Richardson)
Sources : http://www.reuters.com/article/2013/10/01/us-indonesia-coal-idUSBRE9901BN20131001
