Govt reviews mining-investment competitiveness<\/p>\n
By Bernie K. Moestafa<\/p>\n
JAKARTA (JP): Amid looming uncertainties in the local mining
\nindustry, the government said it was reviewing Indonesia's mining
\ninvestment competitiveness.<\/p>\n
\"We're looking at ways to improve our competitiveness,\" the
\ndirector of mining development at the Ministry of Mines and
\nEnergy, Simon Sembiring, told The Jakarta Post over the weekend.<\/p>\n
He said that although Indonesia owned rich mineral resources,
\nit still needed to maintain its competitiveness with other
\ncountries.<\/p>\n
Deteriorating legal certainties in the mining industry, have
\ntarnished Indonesia's mining investment climate, with many
\ncompanies facing locals in conflicts over royalty payments, taxes
\nand land concessions.<\/p>\n
On top of the present uncertainties, the government has
\nrecently raised mining royalty payments by an average of over 100
\npercent for the upcoming eighth generation of contract of works
\n(CoW).<\/p>\n
However, Simon said the government was considering offering
\nincentives to mining companies of the next CoW generation.<\/p>\n
He said the Mineral Technology Research Development Center
\n(MTRDC) was studying the feasibility of offering investors
\nincentives.<\/p>\n
Simon declined to elaborate on the details of the planned
\nincentives, saying it depended on MTRDC's assessment of
\nIndonesia's country risk.<\/p>\n
He expected that MTRDC would have completed its study by the
\ntime the eighth CoW generation would be issued later this year.<\/p>\n
Offering incentives, Simon added, were not necessarily meant
\nto compensate for the hike in royalty payments.<\/p>\n
He said the currently drafted eighth CoW generation sought to
\nraise state income while also improving Indonesia's
\ncompetitiveness.<\/p>\n
\"You have to see the entire picture of a government's policy,\"
\nSimon said.<\/p>\n
In a 1998 study of the industry's competitiveness, the
\nIndonesian Mining Association (IMA), cited Indonesia's current
\ngeneration CoW as still competitive compared to the practices of
\nseveral other countries.<\/p>\n
Its research said that, thus far, only the Philippines offered
\na five-year tax holiday incentive, while Brazil and China made
\nonly limited tax holiday offers.<\/p>\n
Based on the research, corporate annual dead rent for
\nexploration in Indonesia was US$0.35 per hectare, compared to
\n$0.3 per ha in Australia, $1.3 in the Philippines, $1 in Chile
\nand none in the United States.<\/p>\n
The annual dead rent for mining, the research said, was $1.5
\nper ha in Indonesia, as against $10 in Australia, $1.3 in the
\nPhilippines, $2.9 per ha in Chile, and none in the United States.<\/p>\n
Whereas, corporate tax rates in Indonesia were 30 percent
\ncompared to 36 percent in Australia, 35 percent in the
\nPhilippines, 15 percent in Chile and between 15 percent to 35
\npercent in the American states of Arizona and Nevada.<\/p>\n
But regardless of competitive rates, Simon said, it was mainly
\na country's mineral resources that were decisive in attracting
\nforeign investors.<\/p>\n
\"Countries with poor mineral resources can expect little, no
\nmatter how many incentives they may offer,\" he said.<\/p>\n
Simon expressed confidence that despite having raised its
\nroyalty rates, Indonesia's huge mineral potential would continue
\nto lure foreign investors.<\/p>\n
Nevertheless, IMA earlier criticized the increase in the
\nroyalty rates, saying it would deter foreign investors.<\/p>\n
IMA chairman B.N. Wahyu said that Indonesia's mining
\ninvestment climate was already marred by ongoing conflicts
\nbetween mining companies and locals.<\/p>\n
Furthermore, he said, mining companies, which operated mostly
\nin remote areas, needed to invest in basic infrastructure like
\nroads and electricity.<\/p>\n
He said it was, therefore, inappropriate for Indonesia to hike
\nthe royalty payments.<\/p>\n
Under the new regulation, No. 13\/2000, royalties for gold, for
\ninstance, have been raised to 3.75 percent of total production
\nfrom between 1 percent to 1.5 percent.<\/p>\n
The royalties for copper have been set 4 percent, from the
\nprevious 2 percent.<\/p>\n
Based IMA's research, royalties for gold and copper in
\nAustralia were 2.5 percent, the Philippines 2 percent, whereas
\nChile and the United States imposed no royalties on these
\nminerals.<\/p>\n
\"The increase has put us among countries with the highest
\nroyalty rates,\" Wahyu said.<\/p>\n
But the government played down IMA's worries, with secretary
\ngeneral of the Ministry of Mines and Energy Djoko Darmono saying
\nthat the increase would not harm the investment climate.<\/p>\n
He said on Friday that royalty rates constituted only one of
\nthe many factors that foreign investors needed to consider.<\/p>\n
According to him, foreign investors were mostly concerned with
\nissues of security and political stability.<\/p>\n
\"With the hike in royalty rates we will increase the
\ngovernment's income,\" he added.<\/p>",
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