By Matthew Bigg and Yayat Supriatna
JAKARTA, April 12 Indonesia should quickly
impose a tax on mining exports, the industry minister said on
Thursday in comments likely to worry miners in the world's top
exporter of thermal coal and refined tin.
Government officials say a 25 percent tax on mining exports
is being considered for this year and a 50 percent tax for next
year, though miners and industry analysts have speculated that
such plans are likely to be toned down.
The tax plan is the latest in a series of proposed
regulations that have rattled Indonesia's mining sector both
because they could increase the cost of business and because of
a perception of inconsistent policymaking.
"The mining export tax has to be imposed as soon as
possible," Mohamad S. Hidayat told Reuters.
Other new regulations include a plan under which some
foreign mining companies must divest 51 percent within 10 years
and a proposed ban on the export of some unprocessed metals by
The government says its proposals aim to develop its
domestic mining industry, create jobs, win access to higher
streams of mining revenue and allow the state to earn more from
a fast-growing sector at a time of high commodity prices.
Stringent regulations are likely to drive up the cost of
mining in Indonesia but the outlook for the sector remains
stable, ratings agency Standard & Poor's said on Thursday.
"The cost of business in Indonesia will increase. But we
don't think the regulations will be extremely negative," S&P
analyst Xavier Jean said after the agency released a report.
"Basically, we don't think the government will want to kill
the sector," he told Reuters.
He said government strategy also aims to give Indonesia
greater leeway when it comes to the renewal negotiations for
mining companies that operate under Contracts of Work in a
sector that overall contributes around 12 percent of GDP.
The most prominent of those contracts is with
Freeport-McMoRan Copper & Gold's Indonesian unit, which
is due to renegotiate its agreement to run the huge Grasberg
copper and gold mine in Papua.
The report posed a question that has exercised many in the
mining sector in recent weeks: will mining policy be driven
solely by attempts to derive more state benefit from the sector,
a policy sometimes called "resource nationalism"?
Or will that drive be tempered by fear of scaring off mining
investment from a country whose resources include, coal, gold,
copper, tin, nickel, bauxite and silver.
Prudence would ultimately determine policy and Indonesian
officials were mindful of the global competition for mining
investment, S&P said.
In the short run and while commodities prices are high, the
government will benefit and the companies can absorb higher
taxes but when commodity prices fall the higher taxes will hurt
the companies' ability to generate revenue, said Jean.
"This is a lose-lose situation in the medium term and will
come back with a vengeance during the next down cycle for
commodities," said Jean, who is based in Singapore.
S&P is likely to release a report soon on the Indonesian
government's sovereign rating.
Fitch and Moody's upgraded the country to investment status
in recent months in a reflection of its stable fiscal policy
framework, big internal market and strong growth rate at 6.5
percent in 2011.
One factor complicating policy making is that four related
ministries play a role in the process and they do not always
speak with one voice.
There is also political advantage in voicing nationalistic
sentiment ahead of elections in 2014 when President Susilo
Bambang Yudhoyono must stand down and that fact is not lost on
rival parties both within and outside the governing coalition.
Another complication for mining companies is legal fights
over mining assets.
In one example, London-listed miner Churchill Mining Plc
said on Thursday it was heading to international
arbitration in May after Indonesia's supreme court moved to
reject its appeal.
Churchill has been fighting Indonesia's Nusantara Group for
almost four years over the rights to develop a $3 billion
undeveloped coal asset in East Kalimantan province, which is
said to contain 2.8 billion tonnes of coal reserves.