UPDATE 2-Indonesia to cut royalty for processed nickel to 2 pct -official

(Adds context on non-tax revenues)

JAKARTA, Nov 22 (Reuters) - Indonesia will cut the royalty charged on sales of processed and refined nickel to 2 percent, a mining ministry official said on Tuesday, part of a revision of government rules on non-tax revenue from the coal and minerals sector.

The revision is needed to encourage more miners to develop smelters, said Coal and Minerals Director General Bambang Gatot, referring to a government drive to develop downstream industries and increase returns from Indonesia’s mineral resources.

The royalty, paid by miners to the government, is currently 4 percent of each sale.

“If it’s 4 percent it’s as if it gives no incentive for processing and refining. It gives no stimulus to companies to (build smelters),” Gatot told parliament.

The reduction in royalties may come as welcome news to investors in Indonesia’s budding smelter industry, which include Vale Indonesia, China’s Tsingshan, Eramet and state-owned miner Aneka Tambang (Antam). The sector has been rocked by recent uncertainties over the country’s ban on unprocessed ore exports.

The revised regulation is currently being checked by the law and human rights ministry, Gatot said, adding that royalties for other metals would also change under the new rules, but stopped short of saying when the new regulation would be released.

“This is for miners like Vale,” he said, referring to the Brazilian miner which is the top nickel producer in Indonesia.

A royalty of 4 percent would still be charged against sales of nickel ore, Gatot said.

Indonesia, where thousands of coal mines went out of business as commodity prices cratered, is confident of achieving its target of 30.11 trillion rupiah ($2.24 billion) non-tax revenue from mining this year, Gatot said last month.

The world’s top thermal coal exporter missed its 2015 non-tax revenue target by 43 percent. ($1 = 13,440 rupiah) (Reporting by Wilda Asmarini; Writing by Fergus Jensen; Editing by Susan Fenton and David Evans)