Nickel Ore ex Indonesia – Government claims victory

Our correspondents in Indonesia, SPICA SERVICES PTE, have provided us with an update on the situation regarding plans by the government to levy taxes on certain export minerals including nickel ore. The new proposals consisting on the construction of 126 new smelters are perceived as a victory by the government.
Amid concerns over the effect that the host of new government regulations will have on their bottom lines, hundreds of mining companies have submitted plans to the government to establish more than 100 smelting plants.

Under the regulations, recently signed by relevant ministers, mining companies must submit the plans to maintain their right to export.

The firms must also pay a 20% export tax on 65 types of raw minerals — including metal ore and excluding coal — starting on May 16.

Thamrin Sihite, the Director General for minerals and coal at the Energy and Mineral Resources Ministry, said on Thursday that the number of proposed smelters increased significantly since the regulations were introduced earlier this month.

Prior to promulgation of the regulations, the ministry had received proposals for only nine new smelters, in addition to the seven currently in operation in Indonesia, he added.

“We now have proposals for 126 smelters. However, I don’t think we need that much. We will conduct feasibility studies with universities and the companies and also involve Kadin,” Thamrin said, referring to the Indonesian Chambers of Commerce and Industry.

Thamrin said the export tax and the business proposals were needed to prepare the companies for the full implementation of a ban on raw mineral exports that has been slated to come into effect in 2014 as required by the 2009 Mining Law.

The law stipulates that market protection is necessary to ensure domestic supplies and to maximize state benefits through the creation of value-added products.

Critics, however, have said that the government’s policies were discriminative, as they did not apply to large mining companies operating under the so-called Contracts-of-Work with the government, and would leave small- and medium-sized companies unable to compete.

The government has been renegotiating all its mining contracts, including with large operators such as PT Freeport Indonesia and PT Newmont Nusa Tenggara, to increase the royalties and taxes it can collect from the long-term agreements.

Meanwhile, Trade Ministry foreign trade chief Deddy Saleh said that the regulations were needed due to what he described as the potential over-exploitation of mining resources ahead of the full ban, exacerbated by a proliferation of mining permits issued by regional governments.

“The export volume of iron ore and concentrate increased by more than 4,000 percent from 2008 to 2011. From 2010 to 2011, the increase was 219 percent. Those are incredible figures. For zircon, the increase was 298 percent, and 92 percent for nickel,” Deddy said.

Interim Finance Ministry’s fiscal policy chief Bambang Brodjonegoro said that the government expected to raise Rp 13.2 trillion (US$1.42 billion) a year from the export tax under current pricing standards. “Since the tax has been implemented in the middle of the year, state revenue will be about Rp 7 trillion,” Bambang said, adding that generating revenue was not the main objective of the regulation.

Thamrin said a similar interventionist policy might be applied to coal exports in the future. Just as with other minerals, he said, coal was a non-renewable commodity that had to be carefully regulated.

“We are still conducting studies on this matter. It is hard to give added value to coal. Smelting does not apply to coal. We have to further study the character of the commodity,” he said.

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