Indonesia plans coal, base metals export tax in 2012

JAKARTA Dec 23 (Reuters) - Indonesia, a major global producer of raw materials, will look to introduce export taxes for coal and base metals next year, as it tries to encourage more investment in its mining sector, a government minister said on Friday.

Last week, Southeast Asia's largest economy, which is the world's top exporter of thermal coal, the globe's second largest nickel producer and home to the world's second largest copper mine, said new financial policies for commodities were in the offing but gave few details.

"We are preparing the concept of export tax on mineral products as a supporting policy for encouraging base metal and coal downstream industry development," Industry Minister Mohamad Hidayat told Reuters on Friday.

He added that the idea would soon be discussed at the finance ministry's fiscal policy agency led by Aryanto Sagala, head of industrial policy, climate and quality assessment agency at the industry ministry .

"Hopefully we can impose the export tax in 2012," Sagala added. "This is crucial as a milestone for a total export ban in 2014. If we wait until the total ban is imposed in 2014 then it will be late for the government in preparing the local downstream industry."

He added that the government would provide incentives for industry investment, such as tax allowances and tax holidays.

CASH COW

The Indonesian energy and minerals ministry is already drafting a rule that would by 2014 require miners to carry out minimum processing on minerals before export.

Any regulation would be part of a mining and coal law introduced in 2009 that requires miners to process coal and minerals into higher-value products before exporting them, as Indonesia seeks to boost revenue from the mining sector.

The archipelago of 17,000 islands, the world's fifth-largest copper producer last year, has only one copper smelter and this shortage of smelter capacity is mirrored in other metals.

Industry players also argue that not all miners wish to extend their businesses into smelting and other value-added procedures, and that the 2014 law would make them uncompetitive compared to miners in other producing countries.

"At the moment, the resource sector is a cash cow for governments all over the world -- whether emerging economies or first world economies," said Gavin Wendt, Sydney-based analyst at MineLife. "Governments want to maximize the amount of income they can generate.

" One of the things about Indonesia is that it is a relatively low-cost producer ... if all of a sudden you increase the costs of production, then a lot of mines are probably going to become uneconomic."

The country, which was returned to investment-grade status by Fitch Ratings this month, already has export taxes in place for cocoa and palm oil, with the aim of ensuring domestic supplies and boosting downstream industries.

Indonesia has been considering an export tax on power plant fuel coal for many months, but implementation is likely to face fierce opposition from the industry.

The country produces mainly low-grade coal, used predominantly in India and China.

Indonesian miners that could be hit by a new export tax include PT International Nickel Indonesia, PT Adaro Energy, PT Aneka Tambang, Freeport McMoRan Copper & Gold Inc's and PT Bumi Resources.

"When governments start talking about this sort of thing, it does create a lot of uncertainty and investors hate uncertainty," added Wendt.

(Reporting by Yayat Supriatna and Michael Taylor; writing by Michael Taylor; Editing by Sugita Katyal)