Mar
2025
Indonesia is moving to increase royalties on its mining sector as part of an effort to bolster public finances, which are under pressure due to the government’s ambitious spending plans.
Indonesia’s Energy and Mineral Resources Ministry has proposed raising levies on the production of key minerals, including nickel, copper, and coal, shifting from a flat-rate system to a price-dependent structure. This proposal comes as Indonesia struggles to fund large-scale government initiatives, such as free school lunches and the Danantara state investment fund.
Under the new system, nickel ore royalties, previously set at a flat 10% rate, will now range between 14% and 19%, depending on government-determined benchmark prices – HMA, which are published twice a month based on the previous month’s LME nickel price. Similarly, taxes on processed nickel products, ferronickel/nickel pig iron (NPI) and nickel matte, will be increased, making operations more costly for smelting companies. For example, the HMA price for first half of March 2025 is set at US$15,276.33/t Ni, the average LME nickel price from 5 to 25 February. This would place the nickel ore royalty at its lowest level of 14%, which is still 4% higher than the current rate.
The timing of the proposed tax hikes is challenging for miners and refiners. Nickel prices have fallen to multi-year lows, putting pressure on producers. Some are already considering scaling back output, and additional royalty costs may further strain margins.
On the positive side, higher royalties are also expected to support nickel prices, aligning with the Indonesian government's objectives. Additionally, the measure may accelerate the rebalancing of the nickel market by phasing out excess supply, which has led to three consecutive years of oversupply from 2022.