Indonesia may or may not plan to introduce a tax on coal exports as a way to preserve domestic supplies, and statements this past week have done little to clarify a confusing situation that makes investors and markets nervous.
We hope that the statement on Thursday from Energy and Mineral Resources Minister Jero Wacik is correct and shows that the government is listening to the concerns of the private sector.
“I have to confirm to all coal companies that there is no plan to impose export duties,” the minister told reporters.
For weeks there has been talk of a tax on coal exports as a way to preserve stocks for the future, but the industry has been united in saying a tax would devastate their profits. As recently as Monday, Jero said controls were needed, a statement that helped dampen sentiment for mining stocks, which took an 8 percent tumble on Monday on speculation that an export tax was in the works.
Indonesia is the largest exporter of thermal coal in the world, and with unprocessed minerals — but not coal — already facing a 20 percent tax as a way to force more value-added local processing, coal seemed a possible target. The industry reacted negatively to the idea, and we can see their point.
Coal exports are a key driver of Indonesia’s economy, and an export tax is a blunt instrument that would only introduce shocks into the system. If the country needs to use its coal domestically, the way to do so is by boosting demand through aggressive infrastructure projects, especially power plants, that the country badly needs.
Policy flip-flops such as the confusing talk about the coal export tax also contribute to worries that the government itself is unclear on its direction. Private businesses are essential to Indonesia’s future, but both local and foreign investors have to be able to plan their business strategies in a secure and predictable policy environment.