Indonesian miners warned that the government lowered profits and output cuts after raising royalties in one of the country's largest export industries.
Among the moves that affect some of the world's largest mining groups, including Vale and Freeport-McMoran, Jakarta raised royalties for nickel, coal, copper, gold and other minerals over the weekend. Increased as fiscally stressed governments seek to raise revenue to fund ambitious spending plans.
Nickel will be one of the biggest growths, with tax rates rising from a fixed rate of 10% to a range of 14% to 19% depending on the price of metals.
Indonesia is the world's largest nickel manufacturer, which is an important component of stainless steel and electric vehicle batteries.
"This is an additional burden, especially because the regulations were issued during the decline in commodity prices," said Hendra Sinadia, executive director of the Indonesian Mining Association.
Hendra said operating costs will increase and profits will be hit. "Some companies may have to reduce production and even close mines," he added.
Commodities are the backbone of Indonesia's economy and an important contribution to growth. Especially in recent years, the country's nickel industry has grown rapidly, attracting record foreign investment.
However, the royal family has increased because nickel producers are struggling to cope with lower metal prices, while other recent regulations in Indonesia are costing higher.
The mining companies said costs have risen this year due to increased VAT and the requirement to use more biodiesel as fuel.
Since March, Indonesia has also asked natural resource exporters to retain at least more overseas gains onshore to strengthen their foreign reserves and stabilize Rupiah trading near historic lows.
Jakarta defended a move to increase royalties, one of the officials said it was part of an effort to ensure “our natural resources bring the best interests of all Indonesians”.
The country's financial situation has been under pressure as President Prabowo Subianto's $28 billion plan provides free meals to primary school students and pregnant mothers.
The government has begun a $19 billion austerity measure to free up funds from the president's flagship policy and to try to boost national revenue.
In the first two months of the year, revenue declines were shocking, triggering a sell-off in the stock market and currencies.
Hendra said the government is leveraging the commodity sector because its options seem very limited. "The state budget is suffering ... Unfortunately, we are the only hope for the government," he said.
The Indonesian Nickel Miners Association said the royalties increase was “timed” when lower metal prices and the trade war between the United States escalated.
"The increase in royalties has the potential to reduce investment interests in the upstream and downstream nickel sectors, weaken the competitiveness of Indonesian nickel products in the global market and lead to large-scale layoffs due to profit pressures," the organization said in a statement.
A senior nickel industry executive who asked not to be named said miners without integrated processing facilities would be the most affected. He said they could transfer higher costs to smelters, affecting the entire supply chain.
Other reports by Diana Mariska