Reuters: Regulatory News: RPT-UPDATE 2-Indonesia to impose tax, curbs on raw metal exports

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RPT-UPDATE 2-Indonesia to impose tax, curbs on raw metal exports May 4th 2012, 01:44 Thu May 3, 2012 9:44pm EDT By Fergus Jensen and Neil Chatterjee JAKARTA May 3 (Reuters) - Indonesia will impose a new export tax on metal ores and prohibit the shipment of raw minerals unless miners submit plans to build smelters, in a decision likely to shake up mining in one of the world's major metals exporters. The tax is an average 20 percent duty on 14 mineral ore exports including copper, gold and nickel from Sunday, slightly lower than expected but enough to hurt miners in Southeast Asia's biggest economy. "Miners can export with a condition that there will be export duties imposed. The figure is being calculated, on average it is 20 percent for 14 metals," Energy and Minerals Minister Jero Wacik told a news conference. The regulation "will not allow anyone to export raw material, unless they submitted a roadmap to build a smelter", he said, in a confirmation of an existing rule aimed at stopping small miners, which have ramped up shipments in the past year. The decision comes at the end of months of uncertainty for the mining industry, which has been unsettled by a series of regulations this year as Indonesia seeks to derive more revenue from a sector that already contributes around 12 percent of GDP. The issue of how best to develop the G20 country through its mineral resources is especially fraught ahead of elections in 2014, when President Susilo Bambang Yudhoyono must step down after two terms. Two ratings agencies recently awarded Indonesia investment-grade status in recognition of strong growth and falling debt, though Standard & Poor's last month held its rating one notch below investment grade, citing policy slippage in a reference to the new mining rules. Indonesia is the world's leading exporter of thermal coal, but Wacik said the export duties will not apply to that mineral, leaving open the possibility of a future tax on exports. Similar duties have been imposed on palm oil as for mineral ores. Currently there are no export taxes on metal ores, said an executive at state nickel and gold miner PT Aneka Tambang , though some miners have to pay low single-digit royalty charges. As a result, the new duties are likely to hit the profits of miners, some of whom criticised the measure. "The government wants to kill a mouse in a rice field, but they're burning the whole field," said Tjahyono Imawan, president of the Indonesian Mining Services Association. The duty will also be applied to tin, silver, lead, zinc, chromium, platinum, bauxite, iron ore and manganese. The government wants to push miners to process raw ores domestically and export higher-value finished metals, ahead of a ban on 14 raw metal exports in 2014. The tax may lead some small miners of ores such as nickel and bauxite, many of whom have been given mining permits by local authorities under Indonesia's decentralised government system, to halt exports altogether rather than pay the tax or submit plans to build a smelter. Much of this ore is shipped to China, often under the radar of central government officials. Some miners have been ramping up nickel exports ahead of the tax, industry sources say. "Hopefully, the glut of supply will be capped and the Chinese will have to buy more primary nickel," said a nickel trader in London. "However, given the current ore stocks and plentiful Philippine supply, I see no short to medium end to the oversupply scenario," he added. Another London trader said the duty would either make nickel pig iron more expensive, which could hurt demand or reduce profits for miners if they did not pass the extra cost on. Metals prices in London were mostly little affected by news of the tax. Copper fell to its lowest in a week and tin bid lower amid ongoing concerns that weak global growth will hurt demand for commodities, but nickel prices edged up 1.2 percent. PUSH FOR SMELTERS Raw tin ore exports have already been banned, and so the tax on raw minerals should not affect miners such as PT Timah in the world's largest exporter of tin. Tin miners have already built smelters and export refined tin. "There will be a push to make smelters," Wacik said, adding that miners would not be allowed to export raw ores after May 6 without paying the tax. The push for domestic refining via taxation follows a path taken by the government on palm oil and cocoa beans, in the world's top exporter of the edible oil and third-largest cocoa producer. The export taxes on those commodities have already spurred significant investment in domestic processing. Indonesia's metals miners mostly export raw ores. The country is home to Freeport McMoRan Copper & Gold Inc's Grasberg mine, with the world's largest gold reserves and second-biggest copper reserves, as well as Newmont Corp and Vale Indonesia. Newmont's Indonesian copper and gold mine will not be affected by the new government duty, its Indonesia chief said on Thursday, echoing previous comments by other miners such as Freeport that have long-standing contract-of-works (COW) agreements designed to protect them from tax changes. However, the government has said it will negotiate all contracts, including royalties and a recent rule requiring foreign miners to divest at least half their assets after 10 years of production, a change seen as part of a growing trend of global resource nationalism. "The fact is that it is not what business wants ... but I think over time a middle path will be found," said Martiono Hadianto, chief executive of Newmont Nusa Tenggara and also chairman of the Indonesia Mining Association, about the tax. 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