Bad news -Indonesia Eyes 25% Mining Export Tax in 2012

[RAJESH DESAI]

Indonesia Eyes 25% Mining Export Tax in 2012

Published: Tuesday, 3 Apr 2012 | 8:05 PM ET

By: Reuters

Indonesia plans to impose a 25 percent export tax on coal and base metals this year, jumping to 50 percent in 2013, an industry ministry official said on Tuesday, as the major producer of raw materials looks to boost domestic investment and take a bigger slice of mining profits.

If imposed the tax would add to a raft of regulations announced this year that have caused confusion in Indonesia's mining sector and worried foreign investors. It would hit the profits of both national and foreign-owned companies and could also raise costs for importers.

India, a major buyer of Indonesian coal, said it would raise concerns about the proposed tax with Jakarta.

Late last year, the world's top thermal coal and refined tin exporter outlined plans to introduce export taxes on metals and minerals, aiming to encourage downstream investment in the mining sector.

Talks on the export tax were put on hold last week however, with both the industry minister and energy and mineral resources minister due to discuss the plans, but details are emerging from talks within government departments.

It is hoped that introducing an export tax will prevent a deluge of mineral and metal ore shipments, as producers ramp up ahead of a planned 2014 ban, Industry Ministry Secretary General Anshari Bukhari told Reuters.

"We should actually impose the export tax early this year, so that the current export rush can be avoided," he said. "In 2013 we plan to increase the export tax to 50 percent."

Bukhari was unable to give an exact date for when the export tax would be introduced, but added that it would be imposed on miners' export sales.

Indonesia, whose fast-growing mining sector accounts for about 11 percent of GDP, already has export taxes in place for cocoa and palm oil, aiming to ensure domestic supplies and boost downstream industries.

Industry players in Southeast Asia's largest economy, were unsure about the export tax plans, having been left in the dark.

"I haven't heard anything about this," said Rozik Soetjipto, CEO at Freeport-McMoRan Copper & Gold's [FCX 38.58 -0.53 (-1.36%)]Indonesian unit, which runs the huge Grasberg copper and gold mine in Papua.

"I'm not sure whether it is true... from the minister of mines, there is no indication of such a kind of tax. There is some suggestion from certain parties but I don't know exactly how it will go."

In January, Indonesia had said it would not impose an export tax on tin.

New Mining Regulations

The country has announced a series of new mining regulations this year, including a ban on exports of some unprocessed metals from 2014 and changes to rules on foreign ownership.

"This is one of many examples around the world where mining companies are making swillions, and everybody else involved wants a slice of the pie — whether it unions wanting higher wages or government wanting a bigger take of what is a national resource," said BNP Paribas metals analyst Stephen Briggs.

"It is not irrational," he added. "It sounds like this is adding up to a pretty chunky imposition on mining companies and it's hard to believe all of this would be pushed though."

The archipelago is home to the world's second-largest copper mine but only one copper smelter, and this smelting capacity shortage is mirrored for other metals.

Industry experts say it takes about eight years to build a new smelter and supporting infrastructure.

Despite industry pleas for a delay in the 2014 regulation, the government announced plans in February to ban exports of unprocessed copper, gold, silver, nickel, tin, bauxite and zinc by 2014. Coal will be regulated separately.

Analysts were surprised by the export tax plans, and skeptical that all the mining plans announced in recent weeks, would go ahead.

"Right now there appears to be very little clarity, there is talk of taxes, but when will they introduced?" said Citi analyst David Wilson in London. "There is talk of ore export bans, with confusion over whether bans will start as early as May, or by 2014, and then there is also the issue of majority local ownership for any mining operations.

"This confusion is not positive in terms of driving forward investment plans in Indonesia's mining sector."

Hayden Atkins, an analyst with Macquarie in London said while the tax on base metals was expected, the tax on coal was a surprise since there would likely be limited economic opportunities in "upgrading" coal anyway.

"If they did do it, it would definitely cause some ripples, particularly for Indian buyers," he said. "A 25 percent tax is huge. Nowhere else really has the same kind of tax burden on coal directly."

Indian Coal Secretary Alok Perti said such a move would push up the cost of imported coal just after New Delhi removed its own import duty on thermal coal for power plants.

"The government will take this up with Indonesia," Perti, the top official in India's coal ministry, told Reuters. "It will also nullify our efforts to help imports by removing the 5 percent import duty on thermal coal."

India is a major buyer of Indonesian thermal coal, along with China, South Korea, Japan and Taiwan.

Indonesian miners that could be impacted by an export tax include International Vale Indonesia [INCO.JK 3300.00 -50.00 (-1.49%)], Adaro Energy [ADRO.JK 1930.00 -30.00 (-1.53%)], Aneka Tambang [ANTM.JK 1840.00 -10.00 (-0.54%)], Freeport McMoRan Copper & Gold and Bumi Resources [BUMI.JK 2325.00 -50.00 (-2.11%)].

Benchmark copper prices on the London Metal Exchange were little-affected by Indonesia's export tax plans, holding near two-month highs after better-than-expected manufacturing data in China and the United States.

Copyright 2012 Thomson Reuters. Click for restrictions.

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CA. Rajesh Desai