Mon, 22 May 2000

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.