A new rate scale, for the production royalty payable in respect of the first sale of a wide range of mineral products, came into effect in April. There have been big rate increases for some metal mineral products in particular, while other metal mineral products and coal products have been largely spared.
The new production royalty rate scale was strenuously opposed by many mining companies and their industry organizations which emphasized that the current uncertainty over US-imposed tariffs on imports, as well as the difficult economic conditions already facing many Indonesian mining companies, made this very much the wrong time to be increasing production royalty rates. These representations were largely ignored by the Government.
Following the issuance of the new production royalty rate scale, it became clear that many industry observers have an imperfect understanding of how production royalties are applied and collected by the Government in the case of so-called “non-integrated” processing & refining operations as opposed to in the case of so-called “integrated” mining and processing & refining operations. This has led to some confusion, in various quarters, as to which companies will be most affected by the new production royalty rate scale.
In this article, the writer will outline how some of Indonesia’s most important mineral products have fared under the new production royalty rate scale before turning to the issue of why companies carrying on “non-integrated” processing & refining operations are not impacted by the recent increases in production royalty rates.
Author:
Bill Sullivan
Email: bsullivan@cteolaw.com