Indonesia not only wants to own foreign mining co's, now it will impose higher taxes on them too
Indonesia wants to have its mining cake and eat it too, as the country, one of the world's largest exporters of copper and coal, will speed up a tax on mining exports, the industry minister Mohamad S. Hidayat told Reuters today.
The move comes only a few weeks after the country surprised the global mining community with a new rule – Government Regulation No. 24 of 2012 – which was quietly announced on the mining ministry’s website. The regulation forces all foreign mining companies to sell majority stakes in their mining operations to locals by the tenth year of production.
Now the country, – southeast Asia’s largest economy – is planning to impose a 25% tariff on mineral exports, which increases to 50% next year, to be followed by a ban on mineral exports in 2014.
Indonesia’s government claims these rules are meant to help boost the domestic economy. But the revelation by Reuters that it would be imposed as soon as possible – only a couple of a weeks after authorities dismissed reports of a mining tax being on the works– has already triggered reactions.
In a report released today shortly after the minister declarations, financial market think-tank Standard & Poor's said it expects its credit outlook on the Indonesian mining sector to remain stable. This is because its ratings on mining companies operating in Indonesia have long factored in the country's evolving regulations.
According to the document, titled "Indonesia's Mining Regulations: Will Official Rhetoric Tunnel Its Way To Implementation?," the government could hike royalty rates or impose additional tariffs for unprocessed ore and coal exports when the renegotiation of existing mining contracts is completed. Yet, a ban on unprocessed ore exports or punitive taxes on the coal sector will likely be delayed or toned down, said the report.
"While it's unlikely that the government will choke a healthy revenue stream, we expect taxation to go only one way–up," Standard & Poor's credit analyst Xavier Jean said.
Jean added that miners in Indonesia could likely absorb royalty rate increases of 5% to 10% without a material weakening in their credit profile.
International miners with local operations, such as Brazi's Vale SA (NYSE: VALE) and Freeport McMoran Copper & Gold Inc. (NYSE: FCX), won't be happy. Neither will be foreign trading partners and energy-hungry nations, such as India.
Concerned with the effect the imposition on a coal tax will have on its country, India's coal secretary, Alok Perti, told Reuters last week "the government will take this up with Indonesia."
Indonesia, with a population of 240 million is the world’s premier thermal coal exporter and also a tin powerhouse.