* Indonesia proposes 25 pct tax on coal, base metals exports
* Top coal producer calls tax proposal speculative
* Some buyers to look for alternatives, others wait and see
By Reza Thaher and Rebekah Kebede
JAKARTA/PERTH, April 4 Indonesia is considering
a hefty tax on mining exports to stop miners from overexploiting
resources to beat a 2014 ban on shipments of some unprocessed
metals and lower grade coal, an official said on Wednesday, but
the plan may backfire if foreign buyers turn elsewhere.
The proposal to impose a 25 percent export tax on coal and
base metals - rising to 50 percent in 2013 - was greeted with a
mix of confusion and scepticism as both producers and importers
across Asia tried to assess its impact.
"Ever since we issued a mining law in 2009, miners have
reacted by increasing their production multiple times,
exploiting and exporting everything they've got," Thamrin
Sihite, director general for coal and minerals at Indonesia's
ministry of energy and minerals, told Reuters.
"This is dangerous and we need to curb that. We issued a
ministerial regulation in February to ban unprocessed mineral
ores and this new export tax regulation...We hope the tax will
reduce the export rush further. But I can't tell you when it
will be issued."
The latest tax proposal could join a raft of regulations
aimed at increasing government revenues that have worried global
mining companies operating in Indonesia, where the fast-growing
mining sector makes up about 11 percent of GDP.
Indonesia exported $3.8 billion worth of copper in 2011 and
$7.3 billion worth of metal ore. Mineral fuels exports,
including coal, were valued at $27.4 billion.
The government says the new rules also aim at spurring
downstream investment. Indonesia has the world's second-largest
copper mine but only one copper smelter, and this smelting
capacity shortage is mirrored for other metals.
The archipelago is the world's largest exporter of thermal
coal and is expected to ship out about 300 million tonnes this
year to customers across the region including in India, China,
South Korea, Japan, and Taiwan.
Indonesian President Susilo Bambang Yudhoyono said on
Wednesday he sees opportunities to increase state revenue from
specific sectors of the mining industry but warned that a
blanket tax on all sectors would be counter-productive.
"I see there is still opportunities to do it (increase
revenue) in a good way. There are sources such as particular
mining sectors. Not by pumping taxes from all sectors because
that would probably be counter-productive," Yudhoyono told a
After a steady flow of regulatory proposals from Indonesia's
mining officials, few of which have been implemented, many in
the industry were sceptical.
Dileep Srivastava, a director at Indonesia's top coal miner
Bumi Resources, said it was premature to comment and
described the export tax proposal as a "speculative" subject.
A source in the mining ministry, who declined to be named
because of the sensitivity of the issue, said it would prefer a
clampdown on some firms' raw ore exports, allowed from May 6 by
a February mining regulation, and was debating the issue with
the industry ministry, which was keener on an export tax.
Others in the industry said the new proposal lacked clarity.
"We have signed a contract on working permits with the
government which already set and specified rules and regulations
including taxation...the tax regulation is still vague: 25
percent of what? Profit? Selling cost?" Ken Allan, director of
Borneo Lumbung Energy, said, adding that he suspected
the government was "testing the water" to gauge industry
reaction with its current proposal.
Investment bank Goldman Sachs noted in a report on Wednesday
that although the idea of an export tax had previously been
raised, such a tax had never been finalised and a previous
export tax on coal implemented in 2005 was cancelled by the
Supreme Court after lobbying by coal producers.
But if it is implemented, the tax would hit the bottom line
of both metals and coal producers and could push up prices of
some commodities globally, industry experts said.
"If this were to occur, all metal mining companies under our
coverage, Vale Indonesia, Aneka Tambang, and
Timah, will be hurt by this, as most of their revenues
are from exports. For coal, with recent coal price weakness, the
export tax tariff of 25 percent, (if implemented), will further
pressure our coal counters' margins," Jakarta-based brokerage
Bahana Securities said in a note to clients.
"Although the export tax is one of the hottest topics in the
industry currently, 50 percent is excessive in our view," Bahana
said, adding that Bukit Asam, which sells 65 percent
of its coal to the domestic market would probably be the least
impacted by the new tax.
Freeport McMoRan Copper & Gold, which operates the
massive Grasberg mine on Papua island, responded to the proposal
with a statement that it was confident the Indonesian government
would honour existing contracts.
HUNT FOR ALTERNATIVES
The proposed tax also has customers worried. India,
Indonesia's largest coal customer, said on Tuesday it would
raise concerns about the proposed tax with Jakarta.
The uncertainty about the regulations has some buyers
looking for supplies elsewhere in the region.
Japan imports more than half its nickel ore supply from
Indonesia and its top two ferro-nickel producers, Pacific Metal
Mining and Sumitomo Metal Mining, are expected to take a major
hit from the new law.
"We are worried. We are trying to cope by increasing supply
from New Caledonia and the Philippines, but the situation is
still fluid and we have not made a final decision yet," a
spokesperson for Pacific Metals said.
In South Korea, one local utility said if the regulations
pushed up prices it would look as far afield as the United
States to replace Indonesian coal supply.
"If prices rise, then we cannot help diversifying supply
sources more... we see lots of coal likely to come from the U.S.
as U.S. domestic demand is slow. KEPCO and utilities are looking
closely into U.S. coal as there seem lots of chances," a source
at the South Korean utility said.
"If such infrastructure as ports and trains for exports to
the Pacific Ocean from the U.S. inland mines are guaranteed, we
expect term deals for U.S. coal to rise sharply, while reducing
coal from Indonesia and Australia," the source said.
But some buyers said they were not overly concerned, after
seeing many regulation proposals that have either never come to
fruition or ended up being modified.
"We need to wait and see if this would be actually
implemented and how long this would be sustainable, as we saw in
the past that they said they would require a letter of credit
for all the trading, which was scrapped shortly," another South
Korean utility source said.
A coal market source in Singapore said most in the market
were accustomed to coal regulation proposals not working out or
"Right now, I don't think there's any reason to be worried
until it's firmed up," the source said.