Indonesia’s proposed increase in mineral royalties is sending ripples through the mining sector, with analysts warning of potential pressure on profit margins, investor confidence, and the country’s downstream processing ambitions.
A public consultation paper released by the Energy and Mineral Resources Ministry under President Prabowo Subianto details plans to raise royalties on key commodities, including copper, gold, nickel, ferronickel, tin, and thermal coal. The move is aimed at bolstering state revenue but has raised concerns over its broader economic impact.
According to CreditSights, the research arm of Fitch Group, the royalty hike could erode the cash flow of Indonesian metal miners, though some may be able to pass costs onto customers. The impact will vary depending on permit types, with certain firms affected more than others.
Under the proposed rates, copper ore royalties could triple from 5% to 15%, while ferronickel royalties would climb 150% from 2% to 5%. Nickel ore, which currently faces a flat 10% tax, would shift to a sliding scale of 14-19%, based on government-set benchmark prices.
Major players such as Freeport Indonesia and Vale Indonesia are among those expected to be hardest hit. Vale, which produces 75,000 tonnes of nickel annually, confirmed that the increase would affect its finances but also stated that the company sees an opportunity to improve operational efficiency.
The tax hike comes as Indonesia pushes for greater domestic processing of its vast mineral resources, particularly in nickel, which is vital for electric vehicle (EV) batteries. However, higher taxes on refined products like ferronickel and nickel pig iron could increase cost pressures and slow production, affecting the country’s role in the global nickel market.
Indonesia, which produced 298 million tonnes of nickel ore in 2024—accounting for half of global supply—plays a key role in shaping global nickel prices. Analysts warn that higher royalties may push producers to scale back output or delay expansion plans, which could lead to a tighter global supply and potential price rebounds.
The Indonesian Nickel Miners Association (APNI) has voiced concerns that the royalty hikes come at a time when nickel prices are already under pressure due to oversupply. In 2024, nickel prices averaged $17,000 per tonne, down from a peak of $21,000 in 2023.
APNI secretary-general Meidy Katrin Lengkey warned that the government’s focus on tax increases does not take into account the prolonged decline in commodity prices. Rising production costs, coupled with a new mandate requiring miners to use a biodiesel blend (B40), are further straining operations.
Indonesia’s push for higher mining royalties comes as the government looks to boost state revenue after scrapping a planned VAT increase due to public backlash. In 2024, royalty income from mining fell 12% to 140 trillion rupiah ($11.4 billion) amid declining commodity prices. The country also recorded a budget deficit of 31.2 trillion rupiah ($2.5 billion) in the first two months of 2025.
While the proposed tax adjustments may help address fiscal shortfalls, industry observers caution that they could discourage investment and disrupt Indonesia’s long-term strategy to become a global leader in mineral processing.
