Rio Tinto secures deal with govt on tax system for massive project

Ika Krismantari, The Jakarta Post, Jakarta | Tue, 04/29/2008 12:40 PM

Rio Tinto, the world's second largest mining company, announced Monday it reached an agreement with the government over a tax privilege for its planned US$1.5 billion nickel project in Sulawesi.

The tax facility would be given based on a combination of fixed and prevailing rates, the company said in a statement.

Rio Tinto president director Mike Jolley hailed the agreement, saying that it "would provide sufficient certainty for Rio Tinto to support the multi-billion dollar investment."

"The terms are comparable to the tax incentives provided to other industries, and to the development of large scale and high capital projects in remote areas in Indonesia," he said, although the company chose not to give details on the tax rate.

The head of a team representing the government in the negotiations, Bambang Setiawan, said he too had yet to learn of the rate details, but that the Finance Ministry had issued an official letter permitting Rio Tinto the privilege.

Chairman of the Investment Coordinating Board Muhammad Luthfi earlier said Rio Tinto would be granted a fixed-rate tax facility, also known as a nail-down tax system.

Under the fixed-rate system, a company is taxed based on rates which remain unchanged regardless of any amendments made to the tax system, while the widely used progressive system scales tax rates according to income, and are therefore subject to change.

The tax arrangement is among the company's list of items that need to be settled before it can obtain a "contract of work".

The London-based company previously settled on royalties to be paid to the government.

Under the deal, the government will get 1.5 percent of revenues from nickel-in-concentrate and 0.75 percent from refined metal.

The company's next focus would be resolving overlapping concessions with local companies, which are backed by local administrations that have issued smaller businesses mining licenses to operate on Rio Tinto's concessions.

"We have asked assistance from the government to resolve this matter. We hope that we can clear up all the problems," the firm's spokesperson Budi Irianto told the Post.

Rio Tinto plans to mine nickel in Morowali and Konawe regencies, located on the border between Central Sulawesi and Southeast Sulawesi with an initial production expected to reach 46,000 of nickel metal per year.

Numerous mining projects in the country have run aground due partly to legal uncertainties over the jurisdiction of local administrations to manage mining resources, a result of loopholes in existing laws and regulations.