Government raises mining royalties

The government has raised royalties of mining companies by over 100 percent in a bid to increase state revenues from the country's mineral resources, Kompas daily reported on Monday.

According to the Presidential decree, the royalty for gold production is increased to 3.75 percent from 1 and 1.5 percent, that for copper and silver, the royalties are raised from 2 percent to 4 percent and 3.25 percent, respectively.

The royalties for nickel production is also increased to between 4 percent and five percent, depending the quality, while for coal production is raised to between 2 percent and 7 percent.

The Indonesian mining association criticized the move on Saturday, saying the raise would discourage new mining companies from prospecting the country's mineral resources. The new royalties would make Indonesia less competitive because many countries imposed no royalties at all to companies operating in the mining activities.

The association cited that Chile charges no royalties at all to mining investors but requires them to provide integrated community development so that even without the royalty, the mining companies gave better benefits to the local community.

Director for mining development at the Ministry of Mines and Energy, Simon Sembiring, said Indonesia remained attractive for mining operation despite the introduction of the new rates. "I am sure mining companies will not object the new rates," he added.

Analysts feared the new royalties will scare off foreign investors from investing in the Indonesian mining sector because even without the higher rates, many mining firms have threatened to pull out from the country due to a growing resentment from the local people. (*)