Indonesia Coal Sector "Summary of potential policy changes" Handerson

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Indonesia Coal Sector "Summary of potential policy changes" Handerson

ciate Analyst

robin.chen@ubs.com

We think export duty implementation may be more likely than the other items; thus, we +852-2971 8678

bake a 5% export duty into our model assumptions for our coal coverage. On the other

hand, we see potential hurdles in the implementation of other schemes: 1) Increasing

royalty rates may have some limitations, as coal miners under CCoW permits are likely to

be unaffected due to the nature of their "nail down" contracts. 2) A windfall tax remains

vague – notably, the proposed export duty (ie, potentially starting at 5% and increasing

if coal prices rise) already captures the spirit of a windfall tax. An alternative could be to

introduce a new "levy", calculated as a percentage of miners' net profit, which is already

being implemented for first-generation IUPK miners. 3) We think implementation of an

O&G type scheme may require an overhaul of the current mining law. Furthermore, we

believe a cost recovery scheme, which is common for O&G producers in Indonesia, is not

likely to be very beneficial for government revenue.

What else could be introduced?

Other than new policies to increase government revenue, other changes could be as

follows: 1) mining quota development – miners and traders seem to be forming a

consensus view that a larger quota will be approved toward 3Q26; and 2) potential

implementation of a higher domestic market obligation requirement (DMO). A

comprehensive summary of the potential policy changes can be found in Figure 1SumaryofpotentialchangesinIndonesia'scoalsectorpolicy. We

believe the elevated level of noise around policy, tax and royalty changes is creating

negative sentiment in Indonesia's mining sector, seemingly offsetting an upbeat