Royalty hikes on mining not to affect investment

The government insists that its decision to raise royalties on mining from 1% to 3% under Government Regulation No.13/2000 will not affect the investment climate in the mining sector in Indonesia, the Bisnis Indonesia daily reported on Saturday.

"Despite the increase, investors still consider that developing mining businesses in Indonesia is profitable. They do not care about the level of the royalties, but give more emphasis on how they can get profits," Secretary General of the Ministry of Mines and Energy Djoko Darmono said in Jakarta on Friday.

Djoko made the remarks in response to statements by Chairman of Indonesian Mining Association (IMA) Benny Wahju, who said recently that Regulation No. 13/2000 will weaken the competitive edge of Indonesian mining products. The old regulation No. 56/1998, which is replaced by Regulation No. 13/2000, is actually more favorable to attract investors, Benny said. "If the government imposes a high level of royalties, investors will think twice before entering Indonesia," he said.

But, "I think every investor knows well how to do business in any other countries, where they are obliged to pay royalties," Djoko said, reiterating that the royalty hikes will not have any impact on investment whatsoever.

The drop in the number of investors signing the Eight Generation working contracts is not caused by the royalty hikes, "but because of uncertainty in the social and political situation in our country at present," he said.

Benny said that the government is too confident over the royalty hikes. "Actually the government should make a comparative study with other countries before deciding to raise the royalties," he said, citing the lower royalties imposed in Australia than in Indonesia as an example.

Djoko explained that the royalty hikes will be imposed only on new mining investors and not on the old ones. "We have to abide by the existing working contracts," he said.

The government will ask for additional royalties to old investors, including the giant gold and copper mining company PT Freeport Indonesia, only if they expand their production capacities, Djoko was quoted by Astaga.com as saying.

Meanwhile, Erry Riyana Hardjapamekas, president of state-owned tin mining company PT Timah Tbk, expressed concern over the imposition of the new royalty hikes at a time when prices of the tin commodity are falling on the world market.

He said that the royalties the firm has to pay this year will increase to Rp 159 billion from only Rp 59 billion previously in line with the imposition of the royalty hikes.

This increase would automatically reduce the company's net profits, Erry said after the firm's shareholders meeting at the Jakarta Stock Exchange on Friday. (*)