12cgi Ps Mining
Transcript of 12cgi Ps Mining
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OVERVIEW OF THEINDONESIAN MINING
INDUSTRYPresented to
CGI-Private Sector ForumBali, Indonesia
January 20, 2003
Presentation Outline
Why Indonesia ? Current Contributions
The Indonesian Policy Environment
Specific Issues
Possible Solutions
Path Forward
Utilizing Indonesias MineralResource Potential
Mineral resources are sunken treasures that only occurin particular specific places.
Like sunken treasure, which most likely is found on traderoutes, there are places where minerals are more likelyto be found, based on geology. Indonesia is one of theseplaces.
Without mineral exploration, the treasures remainunfound. Without mining, the treasure chest remainsunopened.
Mining represents the finding and opening of thetreasure so that the contents can be shared with: themining company (profits), government (taxes) andpeople (jobs, public facilities bought with taxes,social/charitable contributions.)
Why Indonesia? Nation With theWhy Indonesia? Nation With theLongest Arc Along the Ring of FireLongest Arc Along the Ring of Fire
Why Indonesia? In the Top Third ofNations With Mineral Potential*
Source : Fraser Institute Survey of Mining Companies 2002/2003
Legal Mining Contributes to EconomicProsperity
The mining industry uses less than 0.1% of Indonesiaslandmass, but contributes as follows to the Indonesianeconomy (2000):
2.4% of GDP, or Rp 31.4 trillion
14.1% of total non-oil and gas exports
Direct and indirect employment for about 0.6% of the population
Rp 6.8 trillion in government revenue
Regional and community development projects in the areas ofoperation
Development in Eastern Indonesia
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*) PWC (Survey 2001
Direct Mining Employment:Direct Mining Employment:
33,000 Indonesians33,000 Indonesians
0
200
400
600
800
1000
1200
1400
Down
Stream
Emp
loymen
t
For every person working inthe Mine, there are four people
working in support industry ~
an additional 130,000
people
Dril ling ContractorsAviation Contractors
Suppliers
People(thousand)
People(thousand)
Dire
ctEmployment
Direct Employment Plus Contractors:Direct Employment Plus Contractors:
163,000 Indonesians163,000 Indonesians
0
200
400
600
800
1000
1200
Peop
lesupporte
dby
Mining
$
Peop
lesupporte
dby
Mining
$
Down
Stream
Emp
loymen
t
Down
Stream
Emp
loymen
t
D
irectEm
ploymen
t
D
irectEm
ploymen
t
People(thousand)
People(thousand)
Direct Employment,Direct Employment,Contractors, Downstream IndustriesContractors, Downstream Industriesand Families: 1.3 Million Indonesiansand Families: 1.3 Million Indonesians
Indonesia can not be Viewed in
Isolation
Externally, the world of mining has dramaticallychanged since the 1967 Mining Law: Globalization of the industry
Commodity pricing has not kept place with inflation
Mining companies are merging to remain competitive
Over 110 nations have updated their mining policy
Internally, a new democracy emerges with regional
areas that are more autonomous
Mining investment within Indonesia under the oldmining investment regulations is no longer
competitive in the world marketplace
I ndonesia MiningI ndonesia is among the most mineral-
rich countries on earth, yet it att racts
less than 1% of t he global mining
exploration budget
The Problem Is
Policy . . .
Problem: How the WorldViews Indonesias Policies*
Overall mining policies rated worst in theworld out of 47 high potential miningcountries surveyed! Regulatory Administration, Interpretation,
Enforcement (40 out of 47)
Regulatory duplication (42 out of 47)
Taxation (42 out of 47)
Labor regulation (37 out of 47)
Political stability (3rd worst)
Forced socioeconomic contributions outside oftaxes (41 out of 47)
Land use policy/Native land claims (42 out of 47)
* Source: Fraser Institute Survey 2002/2003
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Result of Bad Policy No Exploration
Source : Global Expenditure -Metals Economics Group
Indonesian Expenditure PwC, Mining Survey 1999, 2001
Global exploration expenditure vs. Indonesian exploration expenditure
0
1
2
3
4
5
1995 1996 1997 1998 1999 2000 2001
$
billions
spentglobally
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
Global exploration spend Indonesian exploration spend as % of global
% of global spending in Indonesia
The Worlds View
of Indonesian Mineral PolicyMineral potential vs Policy potential
Bolivia
ArgentinaMexico
Peru
BrazilChile
Columbia
GhanaVenezuela
Ecuador
Philippines
Zimbabwe
Kazakhstan
RussiaChina
Indonesia Papua NewGuinea
South Africa
Australia
0
10
20
30
40
50
60
70
80
90
100
0 2 0 40 60 8 0 100
Policy potential
MineralPotential
Source : Fraser Institute Survey of MiningCompanies 2001/2002
World Wide Grassroots Exploration ExpendituresResource potential does not attract investment,
policy does!If your not in the top 10, your not in the game!
US$ Million
193
176
8 0 8076 74
49
40 40
30
1812 11 11 11 11 10 10 10 8
0
50
100
150
200
Total WorlwideExpenditure
isUS$1043Million
Result of Bad Policy DecliningReserves and Production
GOLD PRODUCTION(Kg Gold Bullion)
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Year
Kg
GOLD BULLION PRODUCTION
Specific Issues: Law No. 41 Prohibits open pit mining in protected forests
Is a violation of the terms of numerous COWssubject to international arbitration
Is based on false premises that mining has the
major impact on watersheds (mining areas
under development account for less that .1% ofIndonesias land area)
Demonstrates that the Government is notunified, does not respect contracts with limitunderstanding of the facts
Already has led to cancellation of a $1 billioninvestment
Mineral Belt COWS Tenement
Area Removedfrom ActiveExploration
Irian Jaya: 68%
Nusa Tenggara: 43%
Maluku: 7%
Kalimantan: 19%
Sulawesi: 26%
Java-Bali: 6%
Sumatra: 44%
Declares Almost all of the MineralDeclares Almost all of the Mineral
Belt Off Limits to ExplorationBelt Off Limits to Exploration(but yet illegal loggin g continu es unabated)(but yet illegal loggin g continu es unabated)
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Specific Issues: Taxes Tax office administration is unfair and non
consistent, although new LTO has potential
Major specific problems: No VAT refunds
VAT not zero rated on coal and gold exports making
a 10% increase in inputs to production cost
New Royal ty is absurdly high
Withholding taxes, f inal taxes and WAPU sta tusand are disguised tax increases
Forced social contributions are a disguised tax
Regional taxes are multiplying
VAT ADMINISTRATION:66% of Refundable VAT Paid by Mining
Companies in 2001 & 2002 RemainsUnrefunded
0
100
200
300
400
500
600
700
2001 2002 Outstanding
Rp. Billions
VATPaid VAT
Paid
As of7/1
IMA survey of mining companies
New Royalty Rates have doubled! Combined With Other
Taxation Measures Have Ranked Indonesia as the 5th
Most Unfavorable Nation in Terms of Mining Taxation*
3.25% times silverrevenues
1.0% times silverrevenues
Silver
3.75% times goldrevenues
1.5% times gold revenuesGold
4% times copperrevenues
$45 per ton < 80K tons;$55 per ton > 80K tons
Copper
Rate under PP13/2000, dated
February 23, 2000
Rate Under Generation 4COW
* Source : Fraser Institute Survey of Mining Companies 2002/2003
Mineral
Overall Fiscal Impact: What a 5th (1991)Generation COW Mine Owner Would
Pay in Different Countries
$0
$200
$400
$600
$800
$1,000
$1,200
K K V A ustralia P NG US S. Af r. Ca nad a Chile Peru
Calculated by a major accounting firm
Policy Will Dictate One of TwoFutures for Indonesian Mining
Illegal mining is already big business
Responsible investors are fleeingIndonesia because of poor policy
Unless policies and attitudes change,mining will follow the path of illegal logging
As Friends of the Earth puts it, there willbe a Race to the Bottom
MINING WILL CONTINUEONE WAY OR ANOTHER
As Regulated Mining Diminishes
Non-Regulated Mining Expands
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Indonesia Has a Choice:
Planned Land Use Unplanned Land Use
OR
Safe Practices Unsafe Practices
OR
Indonesia Has a Choice:
An EnvironmentallyResponsible Industry
Mining WithoutEnvironmental control
OR
Indonesia Has a Choice: An Industry that
Trains People An Industry that
Exploits People
OR
Indonesia Has a Choice:
Planned Communities Shanty Towns
OR
Indonesia Has a Choice:Recommended Future Policy
Draft a new mining regime inpartnership that stands by itself inconjunction with the internationalcommunity
Target Indonesia to be in Top
Ten in mining policies Promote Indonesian mining
internationally Overrule any policy that is in
conflict with existing COWs
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The Partnership Approach
First Determine where Indonesia wantto be in terms of global policy. Second Collectively review various
options on how to achieve the goal Third Test those options by ranking the
new policy framework Fourth...Develop a white paper on the
new policy and have it agreed to by theMinistries and DPR
The Partnership Approach
Fifth Draft the Mining Law based on theagreed upon white paper along with anyother changes / amendments needed toexisting legislation
Sixth Mining law reviewed / approvedby Parliament
Seventh Implementing regulationsdeveloped in concert with Law
WORKING TOGETHER WEHAVE THE COLLECTIVE
KNOWLEDGE TO POSITIONINDONESIA FOR A
SUSTAINABLE FUTURE !!
Thank you for your kind attention!