Indonesia raises mining royalties in bid to fund Prabowo policies

Indonesia has raised the royalty rate to be paid by nickel, tin and other metal producers as the government searches for ways to fund President Prabowo Subianto’s ambitious but costly priority policies.

The changes to be introduced largely mirror those touted in a public consultation last month, with formerly flat levies on output now rising with commodity prices, according to a regulation document seen by Bloomberg and confirmed by people familiar with the matter.

They asked not to be named as the details aren’t yet public.

Funding flagship policies

The increase, at a time of trade turbulence and uncertainty in metals markets, is indicative of the extent to which the expense associated with flagship policies, including a new state investment fund and free school lunches, are weighing on Jakarta.

Many producers are already under pressure from low prices.

The Ministry of Energy and Mineral Resources, which regulates mining, did not immediately respond to requests for comment.

According to the document, a flat levy of 10% on nickel ore production will be replaced with taxes varying from 14% to 19%, depending on price levels determined by the government.

Lower grade ore that’s then processed into battery-grade nickel will pay a smaller 2% royalty.

Thin margins

Royalties paid on higher grade ferronickel and nickel matte will be lower than stipulated in the public consultation.

Indonesia’s huge smelting industry has been grappling for months with a shortage of ore which has crimped margins and forced many firms to slash output.

Changes to royalties paid on open pit coal production, which accounts for the lion’s share of Indonesia’s massive output, will depend on existing permits. The levies for underground coal mining, however, will be lower by comparison.

The regulation comes into effect 15 days from April 11, the registration date, according to the document.