'High royalties, high taxes not attractive to investors'

'High royalties, high taxes not attractive to investors'

Since the monetary crisis hit Indonesia in 1997, no major
mining companies have applied to get concession rights to explore
and exploit the rich minerals hidden in the country's earth bed.
The Jakarta Post's Leony Aurora talked with Newmont Pacific
Nusantara's new president director Noke Kiroyan, who is also a
member of the National Economic Recovery Committee (KPEN) in
charge of mining activities, on the proposed mining bill as well
as investment in the sector. The following is an excerpt from the
interview:

Question: The House of Representatives is deliberating a bill
to replace the current law on mineral and coal mining, which is
already 28 years old. What do you hope to get from the proposed
draft law?

Answer: We hope to get not just a mining law but one that is
investor-friendly. We, in the KPEN, have requested the Ministry
of Energy and Mineral Resources to maintain the proposed law
within the road map set by the Indonesian Chamber of Commerce and
Industry (Kadin). The road map was also adopted by the President
within his working plan.

An investor-friendly mining law would be one where the legal
basis for concession right was a contract, not a license. A
license can be annulled by one party -- if the license giver
decides to revoke the permit, the license holder has no recourse,
no way of appealing.

A contract, on the other hand, binds two parties and cannot be
revoked by one or the other separately. A contract is stronger
and thus is the preference of mining companies. This is also
included in Kadin's road map.

It would be regretful if the legal basis for mining services
was a license, as currently being discussed, because many major
mining companies would steer clear of investing here.

We have tried contracts, which are used at present.

Why do we want to try something other than a method that has
been proven able to attract investors? The several drafts on the
mining law have drifted from accommodating contracts, then
licenses, then back to contracts, and so on. And the current one
in the House accommodates licenses. Hopefully the House will hear
our concerns.

Sometimes people argue that other countries use licenses as
well as or instead of contracts. Our argument to counter this is
that Indonesia needs to attract investments. For the last eight
years, there have been virtually no major movements and to get
out of this situation, we have to make the mining sector more
attractive. If it's a license, considering past experiences here,
it won't be appealing to investors.

If Indonesia had a good reputation of being a country with
excellent legal certainty, perhaps the investors would not worry
too much about whether it was a license or a contract.

We don't know of the progression of the deliberation of the
bill, as it seems to be stuck at the House. We haven't heard
anything and even before the recess, there was little activity to
discuss this. So I am not optimistic that we will get a new
mining law this year.

What else can be improved to boost investment in the mining
sector?

When we talk of investment in general, one of the most
important things is legal certainty. How to make people confident
that the legal conditions here can be trusted.

What could also be attractive is if tax requirements were
nailed down in the contracts. With such a policy, it would be
clear how high taxes were at the beginning of mining activities.

The taxes may be higher than applicable generally at a given
moment, such as what happened with the first generation of coal
miners, but as we could estimate the amount beforehand, we would
get clear calculations on the costs. An uncertain level of taxes
creates difficulties in making financial calculations.

How about royalties?

The government should pay attention to the condition of
royalties applied in other countries. The tendency is that
royalties around the world are going down. If we insist on high
royalties and taxes, of course it would not be attractive.

Several countries now do not even apply royalties and get
revenues only from the respective miners' income taxes. We, on
the other hand, apply both high royalties and high taxes. Of
course, when there are two similar deposits here and elsewhere,
investors will go to where the royalties and taxes are lower.

Do you have any plan to request concession rights to explore
other areas?

Not at the moment. Investors are adopting a wait-and-see
attitude amid the present uncertainties. As long as the new
mining law is not finished, investors will not go into green
fields. The development of areas that they already hold the
concession rights for, however, will continue.

What does Newmont plan to do in Indonesia next year?

We are planning to develop the Elang site, about 40 kilometers
east from our open-pit mine in Batu Hijau but still within our
concession area in Nusa Tenggara.

It is currently being explored and the potential reserves of
copper and gold look promising. We will submit development plans
to the mineral resources ministry in December, and if approved,
will start the construction work for the infrastructure next
year.