Awaiting for Approval of the Revised RKAB

ICMA WEBSITES – EDITORIAL (24 AUGUST 2020)

Awaiting for Approval of the Revised RKAB

Coal miners are awaiting for the approval of the revision of the Annual Work and Budget Plan (RKAB) amidst the declining trend of the commodity price. As this editorial is being posted, we have yet to obtain any update on the matters. In fact, it is already more than a month after the deadline of the proposed revision was submitted. Despite export and domestic demand are in the historic low due to the Covid-19 pandemic, some companies are targeting for higher production in the remaining of the year. On the other hand, there are miners that have publicly announced their intention to reduce their coal output. Therefore it is a bit challenging for the MoEMR to evaluate the proposed revision as royalty contribution of the coal miners remain significant.

Despite an appeal from ICMA urging his members to cut the supply in order to balance the oversupply condition, to date coal production is relatively strong amidst the Pandemic Covid-19. As of July 2019, total of coal production reached 316 million ton or roughly 57% of the 2020 production target. Meanwhile production in the month of July 2020 is 41 million ton or lower than the previous year which recorded at 47 million ton. With historically the rate of production is higher in the 3rd quarter and 4 quarter, the 2020 target is likely achieved. Thus if the rate of production still high amidst weaker demand, this will put further pressure on the commodity price.

In term of the revenue target, the PNBP is projected to be lower due to the weak prices. Therefore the possibility of lower state revenue from coal might force the government to allow more production. If this is the case, then most of the proposed production hike is likely to be approved by the MoEMR. Assumming miners that produce low grade coal who are now selling their products below their production costs continue to operate, then the revision of the proposed RKAB might bring the 2020 production higher than the initial target (higher than 550 million ton). But, if the distressed price force low calorific value producers reduce or even stop their activities then the revised RKAB will have no impact on the total production target despite the royalty payment is lower.

Regardless of the decision to be taken by the government on the revised RKAB, the most important thing is that coal miners need help from the government. The immediate support is badly needed to assist coal miners survive in this unprecedented condition. Relaxation of the policies in the royalty payment and implementation of the 2020 DMO, among others, are the kind of support the industry need at this moment.

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