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France-based mining firm Eramet has been urged to spin off the processing facility of its planned Indonesian nickel mine if it wishes to take advantage of a foreign investment tax holiday.
The company plans to invest up to $5 billion to build nickel processing facilities associated with its proposed mine at Weda Bay in North Maluku.
Because the company formed to pursue the Weda Bay mine plan pre-dates the government’s tax holiday initiative, the company may otherwise be ineligible for the incentive that it sought. A contract of work for the proposed mine was signed with the national government in 1998.
Thamrin Sihite, the director general for coal and mineral resources at the Energy and Mineral Resources Ministry, said that the regulation providing a tax holiday, issued by the Finance Ministry, may not cover investment plans such as the one by Eramet.
“The thing is, the tax holiday is only for companies [incorporated] after the regulation was issued [in 2010],” Thamrin Sihite said after a meeting with a French trade delegation lead by Trade Minister Nicole Bricq in Jakarta on Wednesday.
“Still, our [Energy and Mineral Resources Ministry] recommendation is to give Eramet the tax holiday because we want to see the investment plan go through. But the decision rests in the hands of the Finance Ministry.”
The tax holiday — an exemption from income tax for a certain period of time — is available to both local and foreign companies with investment plans of more than Rp 1 trillion ($101 million).
So far the government has approved tax holidays for two companies: Unilever Oleochemical Indonesia, a local unit of consumer giant Unilever, and Petrokimia Butadiene Indonesia, a subsidiary of the country’s largest petrochemical company Chandra Asri Petrochemical.
The solution, according to Thamrin, is for Eramet to incorporate a new firm, which could also work to bypass the divestiture obligation applying to the mining industry.
Foreign mining firms in Indonesia are obliged to gradually divest their shares to local entities until local ownership reaches 51 percent after 10 years of operation.
But Thamrin explained that the divestiture obligation is intended for extractive activity, known as the “upstream” segment.
“I explained to them that the divestiture obligation is not applicable for downstream industry,” he added, referring to the nickel refining process.
Thamrin said that he has advised Eramet’s management to form a new subsidiary for its investment in nickel ore processing facilities, while the Weda Bay Nickel company would deal only with mining operations.
The proposed Weda Bay mine is opposed by Indonesian environmental nongovernmental organizations Friends of the Earth and the Mining Advocacy Network, who filed a complaint with the World Bank over its support for the project, citing concerns about forest clearing, water pollution and the fate of mine waste (tailings) after chemical extraction.
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