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Ease in export duties ahead 25-Feb-2014

 

In an apparent tit-for-tat, the government is likely to reduce the export duties mining companies have to pay in return for their commitment to build smelters.

 
The Energy and Mineral Resources Ministry’s director general for minerals and coal, R. Sukhyar, said on Monday that changes would likely come to the tax regulations on mineral exports.
 
“The duty applied to exports from companies already performing serious [downstream] activities must be eased,” he said, adding there had to be physical evidence of smelters being built.
 
“They can get a dispensation — the export tax can be zero,” he said.
 
On Jan. 12, the government put into force a full ban on raw mineral ore exports as stipulated by the 2009 Mining Law. It has since, amid outcry from the industry, decided to allow the continued export of semi-finished minerals, such as concentrates, until 2017. 
 
When it was passed, the 2009 law required miners build domestic processing facilities by 2014 in a bid to add value to the country’s downstream industry. 
 
Mining companies, citing economic infeasibility, failed to build smelters during the period. Now, as a string attached to the exemption for the export of semi-processed minerals aimed at forcing smelter construction, the government has imposed an export duty of 20 percent this year that progressively increases to 60 percent by the second half of 2016.
 
Business players have criticized the export duty, saying it would erase profit margins, which are sometimes only 15 percent. Additionally, US-based mining giants PT Freeport Indonesia — a subsidiary of Freeport McMoRan Copper & Gold Inc. — and PT Newmont Nusa Tenggara (NNT) — a subsidiary of Newmont Mining Corp. — said the export duties violated their contracts of work (CoWs), which protect the companies from incurring taxes extraneous to those stipulated in the contracts.
 
Freeport Indonesia and NNT, which together account for 97 percent of Indonesia’s domestic copper production, have stopped export of copper concentrates since Jan. 12 and are only producing at a level that the country’s only copper smelter, owned by PT Smelting Gresik, can process.
 
Freeport and Newmont currently deliver around 40 percent and half of their copper concentrate production to PT Smelting, respectively.
 
Since the duty was announced, Freeport and Newmont have been lobbying the government to allow them to continue exporting without incurring the high export duty.
 
Industry Minister MS Hidayat said on Monday after a meeting with Freeport Indonesia president director Rozik Soetjipto that the company had shown its willingness to build a smelter within three years and store surety bonds as a guarantee.
 
“If Freeport is building its smelter, the finance minister may consider a relaxation on export duties,” Hidayat said.
 
Freeport and Newmont have previously signed agreements to supply concentrates to smelters being developed by PT Indosmelt, PT Indovasi Mineral Indonesia and PT Nusantara Smelting Corporations to comply with the law.
 
In a recent move, Freeport signed an agreement to conduct a feasibility study with state miner PT Aneka Tambang (Antam) regarding the development of a US$2.2-billion copper smelter. NNT is also mulling a partnership with Antam, to which the copper miner would supply concentrate.
 
Sukhyar said his office had dropped Indovasi from the list of those officially developing smelters, as the firm failed to honor the ministry’s repeated invitations to attend a hearing on its planned project.
 
Given current commitments, the country will have new smelters with a capacity of absorbing 2.9 million tons copper concentrates per year, with Indosmelt having the capacity to process 800,000 tons, Nusantara 900,000 tons and Antam 1.2 million tons. 
 
Added to the existing capacity of 1.2 million tons at Smelting Gresik, the country will have smelters with a total capacity of processing 4.1 million tons of copper concentrate per year in the future. That number will far exceed future supplies.
 
“Freeport’s production capacity is around 2.5 million tons while Newmont’s is 300,000 tons. There will be a deficit in the supply side once all smelters are finished. The government will by then let them perform a beauty contest [to seek suppliers],” Sukhyar said.
 
He added that a contract of work holder named PT Gorontalo Minerals, a subsidiary of PT Bumi Resources Minerals — which is connected to the politically wired Bakrie family — was expected to start digging copper by 2018 and would help feed the smelters.
 
The Jakarta Post
 

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