Adaro Energy, one of Indonesia’s largest coal companies, has been moving vast amounts of profit from coal mined in Indonesia to its growing offshore network, raising the question of whether the network helps Adaro avoid or minimise tax in Indonesia.
Today’s report from Global Witness, Taxing Times for Adaro, reveals that from 2009 to 2017 Adaro’s arrangements with its Singaporean subsidiary, Coaltrade Services International, could have enabled the company to pay US$125 million less than it might otherwise have done in Indonesia. By moving more money through tax havens, Adaro may have reduced its Indonesian tax bill, and the money available to the Indonesian government for essential public services, by nearly $14 million a year.
‘Adaro’s extensive offshore operations appear to sit in stark contrast to their carefully constructed public image of proudly contributing to Indonesia. At the same time as the company already stands to benefit from a government guarantee for a major power station, it’s growing its complex offshore network and moving vast amounts of money out of the country’ said Stuart McWilliam, Climate Change Campaign Manager at Global Witness.
‘Our previous investigations have shown that the tax haven activities of Indonesian coal companies can add financial risk to their hazardous environmental impact. It’s now clear that the Indonesian coal industry is also becoming an acute reputational risk that the Indonesian government and investors should urgently distance themselves from.’
Financial statements show that the total value of sales commissions that Coaltrade received in low-tax Singapore increased from an annual average of $4 million before 2009 to $55 million from 2009-17. Over 70% of the coal it sold came from Adaro’s subsidiaries in Indonesia. The increased payments boosted profits in Singapore, where they were taxed at an annual average of 10%. The profit from the commissions from trading Adaro’s Indonesian coal might otherwise have been taxed in Indonesia at the higher annual average rate of 50%. Global Witness asked Adaro to comment on this point but received no reply.
In 2008, Adaro paid US$33m to settle a dispute with Indonesian tax authorities over its previous arrangements with Coaltrade.
The vast majority of the profits registered in Singapore appear to have been moved further offshore to one of Adaro’s subsidiaries in the tax haven of Mauritius, where it was not subject to any tax at all before 2017, and may still not be.
The report also found that Adaro has recently acquired a subsidiary in the Malaysian tax haven of Labuan which it has used to purchase a large share in an Australian coal mine.
At the same time Adaro has expanded its offshore network, it stands to benefit from the Indonesian government’s financial guarantees for the US$4 billion Batang coal-fired power plant, in which Adaro is a joint venture partner.
Global Witness is calling on the Indonesian government to withdraw its plans for all new coal power stations and plan to transition to renewable energy. The NGO also urges investors to heed the reputational and financial risks connected to the industry and plan to end their financial support to Adaro and other coal companies.