UPDATE 2-Indonesia to propose incentives to build metal smelters

Thu May 24, 2012 10:23am EDT

By Fergus Jensen and Yayat Supriatna

JAKARTA May 24 (Reuters) - Indonesia plans financial incentives to help firms build smelters to comply with new mining regulations, a government official said on Thursday.

Southeast Asia's largest economy on May 6 declared a halt to the export of some unprocessed metals unless companies submitted plans to build smelters, shaking an industry that contributes around 12 percent to the GDP.

The move is part of the government's drive to protect its resources and increase state revenue, but Indonesia has been criticised for creating uncertainty in the mining sector.

"We will propose incentives to support the processing industry," the head of fiscal policy Bambang Brodjonegoro told a news conference. He gave no further details.

Indonesia will also review mineral base export prices every three months to calculate duties on ores subject to new export regulations, the director general of foreign trade said in remarks which help clarify how the new duties will operate.

Director general Deddy Saleh said it would be an interim measure before a longer term system for calculating base prices for mineral ores is found.

The issue of how best to develop the G20 country through its mineral resources has become politicised ahead of elections in 2014, when President Susilo Bambang Yudhoyono must step down after two terms.

Some politicians have been pressing for Indonesia to take a greater share of revenue from the sector.

The trade ministry on Wednesday effectively exempted two miners from the regulation, granting permission to PT Aneka Tambang (Antam) and PT Sebuku Lateritic Iron Ores to export unprocessed ore.

Standard & Poor's last month held its rating one notch below investment grade, citing policy slippage in a reference to the new mining rules, after two ratings agencies recently awarded Indonesia investment-grade status.

Indonesia is the world's leading exporter of thermal coal, but the export duties will not apply to that mineral. Similar duties have been imposed on palm oil as for mineral ores.

The duty will also apply to silver, lead, zinc, chromium, platinum, bauxite, iron ore and manganese.

The government wants to push miners to process raw ores domestically and export higher-value finished metals, ahead of a ban on 14 raw metal exports in 2014 announced earlier this month.

A separate list of 65 minerals including 21 metals will be subject to a 20 percent export tax, the government announced last week.

Many small miners of ores such as nickel and bauxite have been given mining permits by local authorities under Indonesia's decentralised government system. The new rules may lead some of them to halt exports rather than pay the tax or submit smelter plans.

Much of this ore is shipped to China, often under the radar of central government officials.

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