Govt reviews mining-investment competitiveness

Govt reviews mining-investment competitiveness

By Bernie K. Moestafa

JAKARTA (JP): Amid looming uncertainties in the local mining
industry, the government said it was reviewing Indonesia's mining
investment competitiveness.

"We're looking at ways to improve our competitiveness," the
director of mining development at the Ministry of Mines and
Energy, Simon Sembiring, told The Jakarta Post over the weekend.

He said that although Indonesia owned rich mineral resources,
it still needed to maintain its competitiveness with other
countries.

Deteriorating legal certainties in the mining industry, have
tarnished Indonesia's mining investment climate, with many
companies facing locals in conflicts over royalty payments, taxes
and land concessions.

On top of the present uncertainties, the government has
recently raised mining royalty payments by an average of over 100
percent for the upcoming eighth generation of contract of works
(CoW).

However, Simon said the government was considering offering
incentives to mining companies of the next CoW generation.

He said the Mineral Technology Research Development Center
(MTRDC) was studying the feasibility of offering investors
incentives.

Simon declined to elaborate on the details of the planned
incentives, saying it depended on MTRDC's assessment of
Indonesia's country risk.

He expected that MTRDC would have completed its study by the
time the eighth CoW generation would be issued later this year.

Offering incentives, Simon added, were not necessarily meant
to compensate for the hike in royalty payments.

He said the currently drafted eighth CoW generation sought to
raise state income while also improving Indonesia's
competitiveness.

"You have to see the entire picture of a government's policy,"
Simon said.

In a 1998 study of the industry's competitiveness, the
Indonesian Mining Association (IMA), cited Indonesia's current
generation CoW as still competitive compared to the practices of
several other countries.

Its research said that, thus far, only the Philippines offered
a five-year tax holiday incentive, while Brazil and China made
only limited tax holiday offers.

Based on the research, corporate annual dead rent for
exploration in Indonesia was US$0.35 per hectare, compared to
$0.3 per ha in Australia, $1.3 in the Philippines, $1 in Chile
and none in the United States.

The annual dead rent for mining, the research said, was $1.5
per ha in Indonesia, as against $10 in Australia, $1.3 in the
Philippines, $2.9 per ha in Chile, and none in the United States.

Whereas, corporate tax rates in Indonesia were 30 percent
compared to 36 percent in Australia, 35 percent in the
Philippines, 15 percent in Chile and between 15 percent to 35
percent in the American states of Arizona and Nevada.

But regardless of competitive rates, Simon said, it was mainly
a country's mineral resources that were decisive in attracting
foreign investors.

"Countries with poor mineral resources can expect little, no
matter how many incentives they may offer," he said.

Simon expressed confidence that despite having raised its
royalty rates, Indonesia's huge mineral potential would continue
to lure foreign investors.

Nevertheless, IMA earlier criticized the increase in the
royalty rates, saying it would deter foreign investors.

IMA chairman B.N. Wahyu said that Indonesia's mining
investment climate was already marred by ongoing conflicts
between mining companies and locals.

Furthermore, he said, mining companies, which operated mostly
in remote areas, needed to invest in basic infrastructure like
roads and electricity.

He said it was, therefore, inappropriate for Indonesia to hike
the royalty payments.

Under the new regulation, No. 13/2000, royalties for gold, for
instance, have been raised to 3.75 percent of total production
from between 1 percent to 1.5 percent.

The royalties for copper have been set 4 percent, from the
previous 2 percent.

Based IMA's research, royalties for gold and copper in
Australia were 2.5 percent, the Philippines 2 percent, whereas
Chile and the United States imposed no royalties on these
minerals.

"The increase has put us among countries with the highest
royalty rates," Wahyu said.

But the government played down IMA's worries, with secretary
general of the Ministry of Mines and Energy Djoko Darmono saying
that the increase would not harm the investment climate.

He said on Friday that royalty rates constituted only one of
the many factors that foreign investors needed to consider.

According to him, foreign investors were mostly concerned with
issues of security and political stability.

"With the hike in royalty rates we will increase the
government's income," he added.