Indonesia to provide special royalties for coal gasification

Indonesia to provide special royalties for coal gasification
Minister of Energy and Mineral Resources Arifin Tasrif at working meeting with the House of Representatives in Jakarta on Tuesday (January 19, 2021). (The Indonesian Ministry of Energy and Mineral Resources)

Jakarta (Indonesia Window) – The Indonesian government plans to provide a special royalty rate to companies that gasify coal through the Coal to Dimethyl Ether (DME) program.

The policy will be outlined in a regulation of the Minister of Energy and Mineral Resources as part of the government’s commitment to accelerate the national downstreaming sector of coal industry.

“As an effort to boost the downstream program, especially the development of coal to DME, the Ministry of Energy and Mineral Resources will issue a regulation in the form of a coal royalty rate, specifically for coal gasification of up to 0 percent,” Minister Energy and Mineral Resources Arifin Tasrif told a working meeting with the House of Representatives here on Tuesday (Jan. 19).

Currently, the regulation is being drafted by the ministry, which will technically regulate the criteria and procedures for granting coal royalty incentives.

This incentive provision is specifically aimed at speeding up the downstreaming of coal industry, and therefore will reduce the state revenue.

Apart from providing royalty incentives, the government will also set a special price for coal for gasification use. This will be included in the government regulation on the Implementation of Mining Exploitation Activities with scheme of cost plus margin.

The cost component consists of direct and indirect production costs, as well as general and administrative costs. Meanwhile, the margin is set at 15 percent of the cost.

The formula is being prepared in the form of a ministerial regulation or a decree of the Minister of Energy and Mineral Resources.

“The term of the Mining Business Permit for coal gasification projects has been accommodated in the Law Number 3 of 2020,” Arifin said.

The coal to DME project is carried out by PT Bukit Asam (a subsidiary of state-owned company specialized in aluminium smelting Inalum) in collaboration with National oil and gas company Pertamina and Air Products in Tanjung Enim sub district, South Sumatra province. The project is expected to operate in 2024 with a DME production target of 1.4 million tons per year.

Reporting by Indonesia Window

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