Mining association upset over royalty increase

Mining association upset over royalty increase

JAKARTA (JP): The Indonesian Mining Association (IMA)
expressed disappointment on Monday over the government's decision
to raise the royalty rates imposed on mining companies, saying
the policy would stave off foreign mining investment.

IMA chairman BN Wahju said that the hike in royalty payments
made Indonesia no longer attractive to foreign mining investors.

"There'll be no more mining investment here," Wahju told The
Jakarta Post.

The government, through regulation No.13/2000, has raised
mining royalties by an average 100 percent plus across the board.

Under the regulation, the royalties for gold have been raised
to 3.75 percent of total production from between 1 percent to 1.5
percent.

The royalties for copper and silver have been set at 4 percent
and 3.25 percent respectively from the previous 2 percent.

Royalties for coal have been raised, depending quality, to
between 2 percent to 7 percent from between 4 percent to 5
percent.

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

He said the United States and Australia imposed high
royalties, but in turn provided mining investors with basic
infrastructures such as roads and electricity.

Indonesia, however, not only lacked infrastructure, but the
country's investment climate was further tarnished by reports of
political and security uncertainties, he added.

After the downfall of former president Soeharto in 1998, many
mining companies faced locals in conflicts over royalty payments,
taxes and land concessions.

According to Wahyu, with Indonesia's previous royalty rates,
attracting foreign mining investors was already difficult.

"It is, therefore, not appropriate for us to raise royalties,"
he said.

Wahju warned that the new rates would not be productive for
the country, as the government would lose potential investors
rather than boosting revenue.

Whereas the government's revenue, he said, came mainly from
taxes and the economic benefits of mining operations.

"We urge the government to reconsider the royalty hikes," he
said.

He said the IMA would continue to lobby the government to
revoke the regulation.

Director general of general mining at the Ministry of Mines
and Energy Surna Tjahja Djajadiningrat said the royalty increase
only affected mining contracts made after the enactment of the
regulation last February by President Abdurrahman Wahid.

"The regulation does not apply to current mining contracts,"
he told the Post.

Surna further said that Indonesia would remain attractive to
foreign mining investors. "It is the political situation that is
fundamental to investors," he said.

He said investors were not that concerned about royalty hikes
as they were about the country's political stability.

He added that the royalty rises already included depletion
allowances that most developed countries imposed on mining
companies.

He said that in countries like the United States, mining
companies had to pay depletion allowances to individual owners on
whose properties the companies were operating.

"We can't do that here, since our mineral resources belong to
the people and not individuals," he explained. A depletion
allowance is a type of fee paid by a mine operator to the owner
of the land.

He said the absence of any form of depletion allowance had
been the general reason why the government decided to hike the
royalty rates.(bkm)