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UPDATE 1-Indonesia sets mining export tax cut in draft regulation-official
June 20, 2014 / 10:57 AM / 3 years ago

UPDATE 1-Indonesia sets mining export tax cut in draft regulation-official

* New draft mining export tax regulation agreed by govt departments

* Newmont is yet to receive the new tax regulation -spokesman

* Miners previously say any export tax would breach contracts

* Talks continue over contract extension, royalties and smelter plans (Adds ministry official’s and Newmont’s comments)

By Wilda Asmarini and Michael Taylor

JAKARTA, June 20 (Reuters) - Indonesia is drafting a new mining export tax that would more than halve the base rate to be paid by miners but doubts remain whether it would be accepted by major copper miners and end a five-month-old dispute that has halted concentrate exports.

Indonesia’s main copper concentrate producers Freeport-McMoRan Copper & Gold Inc and Newmont Mining Corp stopped exports in January when the government introduced new mining rules, including an escalating export tax.

The two U.S. companies have previously insisted they should not have to pay any additional taxes because it would violate their current mining contracts, casting doubt on whether even a lower tax rate would be accepted by the miners.

Coal and Minerals Director General Sukhyar said on Friday the new draft regulation meant the export tax would start below 10 percent and would be linked to a company’s progress in building a smelter.

“Yesterday I had discussions with the finance ministry and they said the draft is already finalized,” Sukhyar told reporters, adding that it been agreed by the mining, industry and finance ministries.

Finance Minister Chatib Basri said on Friday the draft tax regulation still needed to be approved by chief economics minister Chairul Tanjung and President Susilo Bambang Yudhoyono.

The CEOs of both the companies have been in Jakarta in recent days to meet with Tanjung in a renewed government push to find a solution.

It is not known whether the CEOs are still in Jakarta.

Sukhyar said both the U.S. miners had agreed to pay the new export tax rate. However, neither firm would confirm whether a reduced rate would be acceptable.

“We have not received it yet,” Newmont spokesman Rubi Purnomo said in an email about the new draft export regulation and rate.

“We are very hopeful that the government will give us certainty very soon and a resolution that will allow PTNNT (Newmont) to resume operations in economically sustainable manner.”

Freeport declined to comment on Friday.

The current copper export tax kicks in at 25 percent and rises to 60 percent in the second half of 2016, before a total concentrate export ban in 2017.

Yudhoyono’s outgoing administration has been trying to force miners to build smelters and processing plants in Indonesia, but a lack of progress in ending the dispute has led Newmont to declare force majeure and Freeport to slash output.

Even if the export tax rate is reduced in the new government draft regulation and then accepted by the companies, large hurdles remain before exports can be resumed.

If the new tax rate is tied to smelter construction progress, although Freeport and Newmont have agreed to conduct a feasibility study into building a copper smelter, both have questioned whether it would be economically viable.

Freeport also says it needs the certainty of a contract extension beyond 2021, before agreeing to invest more than $17 billion needed for a copper smelter and to turn its Grasberg complex into an underground mine after 2016.

Discussions with Freeport over a contract extension were continuing, Sukhyar added.

An extension to Newmont’s deal, which ends in 2030, is not under discussion in the contract talks, according to government officials, with the main issue of concern being a proposed increase in royalty percentages paid to the government. (Reporting by Wilda Asmarini and Michael Taylor; Additional reporting by Adriana Nina Kusuma; Writing by Michael Taylor; Editing by Richard Pullin and Muralikumar Anantharaman)

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