--Clyde Russell is a Reuters market analyst. The views
expressed are his own.--
By Clyde Russell
LAUNCESTON, Australia, Oct 25 Australia,
Indonesia and Mozambique appear quite disparate countries, but
they all have one thing in common insofar as they want to supply
Asia with large volumes of coal and liquefied natural gas.
But the paths being taken by the three governments in
pursuit of this are vastly different, and will ultimately decide
which nation is most successful in using its natural resources
to its best advantage.
Perhaps the most stark contrast is between neighbours
Australia and Indonesia, which are pursuing almost polar
Australia's new Liberal-led government introduced
legislation on Oct. 24 to scrap a tax on super profits from
mining coal and iron ore.
This was part of a pledge made before the September general
election that a Liberal administration would get rid of the
Mineral Resource Rent Tax (MRRT), the carbon tax and cut red and
green tape for natural resource projects.
It's part of new Prime Minister Tony Abbott's message that
Australia, the world's largest coal, iron ore and soon to be LNG
exporter, is once again open for business after six years of
Labor Party rule that saw a raft of new taxes introduced.
In Indonesia the debate isn't about scrapping taxes, it's
about how to raise them higher.
The government of President Susilo Bambang Yudhoyono plans
to introduce higher royalty charges and an export tax for coal
miners next year, as well as restrictions on the export of
unprocessed mineral ores such as nickel and bauxite.
Unsurprisingly, the mining industry is opposed to these new
charges and regulations, with coal producers saying output could
plummet by as much as 40 percent next year.
Indonesia is the world's biggest exporter of thermal coal
used in power plants, shipping about $2 billion of the fuel
every month, mainly to China and India.
Like the former Labor-led government in Australia, Indonesia
is seeking to retain a larger share of its mineral wealth.
In both countries left-of-centre politicians found policies
aimed at taking money from large, global mining corporations and
ostensibly giving to the people in the form of state spending
were popular with voters.
The problem was that in Australia it simply didn't work, and
it's unlikely to work in Indonesia either.
Instead, what happened in Australia was the government ran
headlong into weaker commodity prices, which blew away the
forecast revenue, thereby hurting the fiscal position as it had
already spent the anticipated windfall largely on welfare.
It also found that Australia's political risk ratcheted up,
and this, along with other factors like a strong local currency
and high labour costs, resulted in a swathe of project delays
Former Labor prime minister Julia Gillard introduced the
MRRT and the carbon tax, the former aimed at harvesting revenue
from the China-led commodities boom and the latter at cutting
carbon emissions in one of the world's highest per capita
However, the MRRT collected just A$126 million ($121.6
million) in the first six months after its introduction in July
last year, well short of the budgeted A$1 billion.
While a recovery in iron ore prices has helped boost its
take since then, depressed Asian coal prices have meant the tax
is still raising a fraction of what it was supposed to.
In other words, Australia ended up with the worst outcomes,
since it didn't get the revenue from the new taxes and it
damaged its investment-friendly reputation.
INDONESIA TAKES ROUTE AUSTRALIA ABANDONED
Indonesia will probably get the same result if it follows
Australia down the road of higher taxes and more burdensome
Export volumes are likely to drop, even if the 40 percent
figure from the Indonesian Coal Mining Association seems a
worst-case scenario, and investment in new projects is likely to
stall or be scaled back.
There are caveats to mention with the government's policies
for both Australia and Indonesia.
The Liberals don't control Australia's Senate, and
legislation has to pass both the lower House of Representatives
and the upper house.
Labor and the Australian Greens have already said they
indicated they won't support the rollback of taxes, so Abbott
will have to wait until the new Senate sits after July next
Even then he is facing tough negotiations with minor parties
and independents, including the Palmer United Party, which is
likely to have three seats in the 76-seat Senate.
The eponymous party led by wealthy mining magnate Clive
Palmer should support the repeal of the mining and carbon taxes,
but Palmer has shown himself to be a maverick and is certain to
demand all sorts of concessions for his support.
Even with Palmer's backing, Abbott will have to find three
more votes among the independent senators, who range from a
anti-gambling advocate to a charismatic Christian to an off-road
Similarly, Indonesia has a track record of announcing major
reforms and then watering them down as they draw closer to
Nonetheless, the trends are clear, Australians voted for a
government that plans to make life easier for miners, while
Indonesia is travelling in another direction.
And what of Mozambique? It's the new kid on the block, home
to the most significant coal and natural gas discoveries of
recent years, and has been touted as the next place to undergo a
commodity-driven investment boom.
The problem is that the east African country isn't fully
reconciled to its troubled past, with the main opposition group
last week abandoning the 1992 peace agreement that ended 17
years of often brutal civil war.
The main complaint of the former rebel group Renamo is that
the Frelimo government of President Armando Guebuza, which has
won every election since 1992 with larger majorities, isn't
sharing wealth or power.
While it's doubtful Renamo can go back to being the
effective guerrilla movement it was during the war, it can
disrupt the economy through targeted attacks and thereby do
considerable damage to Mozambique's chances of attracting
It's too early to say how the Mozambique situation will play
out in coming months, but like Indonesia the risks of doing
business there are rising for natural resource producers.
Australia's new government is trying to make good on its
commitment to make the nation friendlier for mining and LNG
companies, but it has legislative hurdles to clear.
And investors also face the near certainty that at some
point in Australia's future, a tax-and-spend Labor government,
most likely supported by the Greens, will return to power.
(Editing by Joseph Radford)