By Fergus Jensen and Neil Chatterjee
JAKARTA May 3 Indonesia will impose a new
export tax on metal ores and prohibit the shipment of raw
minerals unless miners submit plans to build smelters, in a
decision likely to shake up mining in one of the world's major
The tax is an average 20 percent duty on 14 mineral ore
exports including copper, gold and nickel from Sunday, slightly
lower than expected but enough to hurt miners in Southeast
Asia's biggest economy.
"Miners can export with a condition that there will be
export duties imposed. The figure is being calculated, on
average it is 20 percent for 14 metals," Energy and Minerals
Minister Jero Wacik told a news conference.
The regulation "will not allow anyone to export raw
material, unless they submitted a roadmap to build a smelter",
he said, in a confirmation of an existing rule aimed at stopping
small miners, which have ramped up shipments in the past year.
The decision comes at the end of months of uncertainty for
the mining industry, which has been unsettled by a series of
regulations this year as Indonesia seeks to derive more revenue
from a sector that already contributes around 12 percent of GDP.
The issue of how best to develop the G20 country through its
mineral resources is especially fraught ahead of elections in
2014, when President Susilo Bambang Yudhoyono must step down
after two terms.
Two ratings agencies recently awarded Indonesia
investment-grade status in recognition of strong growth and
falling debt, though Standard & Poor's last month held its
rating one notch below investment grade, citing policy slippage
in a reference to the new mining rules.
Indonesia is the world's leading exporter of thermal coal,
but Wacik said the export duties will not apply to that mineral,
leaving open the possibility of a future tax on exports. Similar
duties have been imposed on palm oil as for mineral ores.
Currently there are no export taxes on metal ores, said an
executive at state nickel and gold miner PT Aneka Tambang
, though some miners have to pay low single-digit
As a result, the new duties are likely to hit the profits of
miners, some of whom criticised the measure.
"The government wants to kill a mouse in a rice field, but
they're burning the whole field," said Tjahyono Imawan,
president of the Indonesian Mining Services Association.
The duty will also be applied to tin, 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.
The tax may lead some small miners of ores such as nickel
and bauxite, many of whom have been given mining permits by
local authorities under Indonesia's decentralised government
system, to halt exports altogether rather than pay the tax or
submit plans to build a smelter.
Much of this ore is shipped to China, often under the radar
of central government officials. Some miners have been ramping
up nickel exports ahead of the tax, industry sources say.
"Hopefully, the glut of supply will be capped and the
Chinese will have to buy more primary nickel," said a nickel
trader in London. "However, given the current ore stocks and
plentiful Philippine supply, I see no short to medium end to the
oversupply scenario," he added.
Another London trader said the duty would either make nickel
pig iron more expensive, which could hurt demand or reduce
profits for miners if they did not pass the extra cost on.
Metals prices in London were mostly little affected by news
of the tax. Copper fell to its lowest in a week and tin
bid lower amid ongoing concerns that weak global growth
will hurt demand for commodities, but nickel prices edged up 1.2
PUSH FOR SMELTERS
Raw tin ore exports have already been banned, and so the tax
on raw minerals should not affect miners such as PT Timah
in the world's largest exporter of tin. Tin miners
have already built smelters and export refined tin.
"There will be a push to make smelters," Wacik said, adding
that miners would not be allowed to export raw ores after May 6
without paying the tax.
The push for domestic refining via taxation follows a path
taken by the government on palm oil and cocoa beans, in the
world's top exporter of the edible oil and third-largest cocoa
producer. The export taxes on those commodities have already
spurred significant investment in domestic processing.
Indonesia's metals miners mostly export raw ores. The
country is home to Freeport McMoRan Copper & Gold Inc's
Grasberg mine, with the world's largest gold reserves and
second-biggest copper reserves, as well as Newmont Corp
and Vale Indonesia.
Newmont's Indonesian copper and gold mine will not be
affected by the new government duty, its Indonesia chief said on
Thursday, echoing previous comments by other miners such as
Freeport that have long-standing contract-of-works (COW)
agreements designed to protect them from tax changes.
However, the government has said it will negotiate all
contracts, including royalties and a recent rule requiring
foreign miners to divest at least half their assets after 10
years of production, a change seen as part of a growing trend of
global resource nationalism.
"The fact is that it is not what business wants ... but I
think over time a middle path will be found," said Martiono
Hadianto, chief executive of Newmont Nusa Tenggara and also
chairman of the Indonesia Mining Association, about the tax.