Reuters: Regulatory News: REFILE-UPDATE 1-Indonesia mine export tax aimed at curbing output boom

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REFILE-UPDATE 1-Indonesia mine export tax aimed at curbing output boom Apr 4th 2012, 08:32 Wed Apr 4, 2012 4:32am EDT By Reza Thaher and Rebekah Kebede JAKARTA/PERTH, April 4 (Reuters) - Indonesia is considering a hefty tax on mining exports to stop miners overexploiting resources to beat a 2014 ban on shipments of some unprocessed metals, a senior official said on Wednesday, but the plan may backfire as importers start to look elsewhere for supplies. The proposal to impose a 25 percent export tax on coal and base metals - rising to 50 percent in 2013 - was met with a mix of confusion and scepticism as both producers and buyers across Asia tried to assess it impact. "Ever since we issued a mining law in 2009, miners have reacted by increasing their production multiple times, exploiting and exporting everything they've got," Thamrin Sihite, director general for coal and minerals at Indonesia's ministry of energy and minerals, told Reuters. "This is dangerous and we need to curb that. We issued a ministerial regulation in February to ban unprocessed mineral ores and this new export tax regulation...We hope the tax will reduce the export rush further. But I can't tell you when it will be issued." The latest tax proposal is one of a raft of regulations aimed at increasing government revenues that have worried global mining companies operating in Indonesia, where the fast-growing mining sector accounts for about 11 percent of GDP. The government says the new rules are also aimed at spurring downstream investment. Indonesia has the world's second-largest copper mine but only one copper smelter, and this smelting capacity shortage is mirrored for other metals. The archipelago is the world's largest exporter of thermal coal and is expected to ship out about 300 million tonnes this year to customers across the region including in India, China, South Korea, Japan, and Taiwan. If implemented, the tax would hit to the bottom line of both metals and coal producers, industry experts said. "Although the export tax is one of the hottest topics in the industry currently, 50 percent is excessive in our view," Jakarta-based brokerage Bahana Securities said in a note to clients. "If this were to occur, all metal mining companies under our coverage, Vale Indonesia, Aneka Tambang, and Timah, will be hurt by this, as most of their revenues are from exports. For coal, with recent coal price weakness, the export tax tariff of 25 percent, (if implemented), will further pressure our coal counters' margins." Bukit Asam, which sells 65 percent of its coal to the domestic market would likely be the least impacted by the new tax, Bahana added. Freeport McMoRan Copper & Gold, which operates the massive Grasberg mine on Papua island, responded to the proposal with a statement saying it was confident the Indonesian government would honour existing contracts. HUNT FOR ALTERNATIVES The proposed tax also has customers worried. India, Indonesia's largest coal customer, said on Tuesday it would raise concerns about the proposed tax with Jakarta. The uncertainty about the regulations has some buyers looking for supplies elsewhere in the region. Japan imports more than half its nickel ore supply from Indonesia and its top two ferro-nickel producers, Pacific Metal Mining and Sumitomo Metal Mining, are expected to take a major hit from the new law. "We are worried. We are trying to cope by increasing supply from New Caledonia and the Philippines, but the situation is still fluid and we have not made a final decision yet," a spokesperson for Pacific Metals said. In South Korea, one local utility said if the regulations pushed up prices it would look as far afield as the United States to replace Indonesian coal supply. "If prices rise, then we cannot help diversifying supply sources more... we see lots of coal likely to come from the U.S. as U.S. domestic demand is slow. KEPCO and utilities are looking closely into U.S. coal as there seem lots of chances," a source at a local South Korean utility said. "If such infrastructures as ports and trains for exports to the Pacific Ocean from the U.S. inland mines are guaranteed, we expect term deals for U.S. coal to rise sharply, while reducing coal from Indonesia and Australia," the source said. After a steady flow of regulatory proposals from Indonesia's mining officials, some in the industry said they were not taking the announcement at face value. "We need to wait and see if this would be actually implemented and how long this would be sustainable, as we saw in the past that they said they would require a letter of credit for all the trading, which was scrapped shortly," another South Korean utility source said. Another coal market source in Singapore said most in the market accustomed to coal regulation proposals that either never come to fruition or ended up being modified. "Right now, I don't think there's any reason to be worried until it's firmed up," the source said. Link this Share this Digg this Email Reprints

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