Indonesia mining law unlikely before 2003 on government conflict

Indonesia is unlikely to see the passage of the much-awaited mining law until next year, due to inter-ministerial disagreements surrounding the draft law, a senior official of the Energy and Mineral Resources told Dow Jones Newswires Wednesday.

Submission to Parliament of the new mining law, to replace one in force since 1967, has been delayed this time because ministries disagree on its content, Tubagus A. Nurwinakun, the ministry's head of the law and public relations bureau said.

The law has been delayed several times since 1996.

The new law is expected to set a clear boundary on the control of Indonesia 's cash generating mining industry between local and central governments.

Many international miners want to see the law passed before deciding on their future projects in Indonesia.

"Now the Finance Ministry disagrees with the (Energy and Mineral Resources) ministry's proposal on taxation of new mining investors," Dow Jones Newswires quoted Tubagus as saying.

The Finance Ministry would prefer the law to stipulate that corporate tax rates for mining companies can be changed in accordance with Indonesia 's tax regulation, as Indonesia 's corporate taxes are likely to decline, Tubagus said.

"The tax trend (in Indonesia) is likely to follow the international one to stay competitive," enough to attract more international companies, he added.

However, the Energy and Mineral Resources Ministry, who drafted the law, wants investors to have two options: to abide by the current corporate tax rate of 30 percent throughout the contract life, or to have the rate adjusted in accordance with the Finance Ministry's future regulation.

"Investors prefer a fixed tax rate, and we think they should be able to have choices. We have to settle this issue with the Finance Ministry and then get a cabinet approval" before submitting the draft law to Parliament, Tubagus said.

Indonesia is well-endowed with various mineral resources, namely gold, copper and nickel. This year, the Finance Ministry expects the industry to bring in Rp1.10 trillion (US$1=Rp9055), compared with around Rp.928.1 billion last year.

Tubagus expects the two ministries to sort out their differences on the tax issue and get cabinet approval later this year.

"We hope to see progress in the next three months, and submit the draft law to the Parliament by the end of the year," he said.

However, he also mentioned a legal issue that may prolong the passage the mining law.

In 1999, the Forestry Ministry issued a law prohibiting mining activities in forest areas that are declared under preservation.

However, many mining projects in areas under preservation had received authorization prior to the 1999 Forestry Law, such as the currently stalled nickel project on Gag Island, which belongs to Anglo-Australian miner BHP Billiton and Indonesian miner PT Aneka Tambang.

The new mining law is expected to override the Forestry law, subject to Parliament approval.

"This issue has to be settled in the Parliament only," Tubagus said.

One foreign company in need of the passage of the new mining law is Anglo-Australian Rio Tinto PLC, which has applied to the Indonesian government for gold mining projects in North Sumatra, Southeast of Sulawesi, Central Kalimantan, and Sorong of Papua Province.

Rio Tinto and British American BP PLC equally own East Kalimantan-based coal mining giant PT Kaltim Prima Coal (KPC). (*)