Indian Companies Brace for Indonesian Mining Tax; Indian Power Sector dependancy on Indonesian coal

The tsunami fears may have subsided for now, but Indonesia’s impending decision to impose export tax on minerals is a looming threat for Indian companies, especially since the country has emerged as a large exporter of thermal coal to India.

Indonesia’s mining minister was quoted by news agency reports on Thursday that the country is planning to impose such a tax soon. The tax is likely to be imposed at a rate of 25% in the first year, with the rate going up to 50% the following year in a bid to raise the mineral rich country’s share of earnings from mining profits.

Analysts and sector experts said they were surprised at the move, adding that more clarity is required before its implications can be fully ascertained. Puneet Goel, director, KPMG Advisory Services, said: “We are yet to know whether the tax will be applicable only on mining commodities and ores and whether coal will be included. Moreover, since coal is an internationally traded commodity with prices fixed globally, captive miners will have to absorb part of the hike. However, I don’tthink it will have a major impact on landed prices of thermal coal.”

India, one of the biggest importers of Indonesian coal, currently runs around 9,000 MW of capacity on coal from the country, with another 10,000 MW under execution. While companies like NTPC, JSW Energy, Lanco Infra etc., have fuel supply pacts with miners in that country, Tata Power,Adani Group and Reliance Power have coal assets in that country. Cement and steel firms also import coal from Indonesia.

PSUs, like National Aluminium Company which has plans for investing in coal mining project for a thermal power plant in Indonesia, are also likely to be affected. “This is all happening a little too sudden and it comes as a surprise. For companies, there is no way out of it. We have to take it on our chin for the time being and suffer additionally because of the tax,” Kameswara Rao, leader, energy utilites and mining at PwC said. Indonesia’s coal output is seen rising to 390 million tonne in 2012, with the biggest share of its exports going to China and India.