Prabowo’s proposed tax hike rattles miners, jeopardises Indonesia’s downstream ambitions

[JAKARTA] Indonesia’s bold push to hike royalties on key commodities from copper to gold and nickel is sending shockwaves through the mining sector, with analysts warning it could squeeze margins, spook investors and cast a shadow over the country’s downstreaming ambitions.

A newly released public consultation paper from the Energy and Mineral Resources Ministry under President Prabowo Subianto has fuelled concerns over regulatory uncertainty and industry profitability, as it proposes higher mineral royalties to tighten the screws on miners.

CreditSights, the debt research arm of Fitch Group, warned that if the proposed royalty hike takes effect, it could chip away at the margins and cash flow of Indonesia’s metal miners.

However, the miners “should have some flexibility in passing through the higher royalties to the end-customer”, the research firm noted.

The proposed royalty hike zeroes in on crucial commodities copper, gold, nickel, ferronickel, tin and thermal coal – resources at the heart of the government’s ambitious downstreaming agenda.