The government is right in taking stern measures against six large coal mining companies which have refused to hand over Rp 7 trillion (US$760 million) in royalties which they owe.
The travel ban slapped on the 14 executives of the coal producers is in fact too lenient a punishment, compared to the penalties they should have faced for their refusal to pay the royalties since 2001.
The companies' stubborn refusal to pay is completely out of line, especially at a time when they are enjoying windfall profits from sky-high coal prices -- and while the government is facing financial problems.
The dispute over the government refund of value added tax (VAT) to the coal mining companies by no means justifies the mining contractors' arrogant behavior.
Refusing to submit to the government the sales proceeds of its coal share from mining concessions is a criminal act, an outright breach of contract. We wonder why the government (Finance Ministry) is being so lenient and waiting so long to get tough with the errant mining firms.
The royalties rightfully belong to the government because they are derived from the sales proceeds of the government's coal share from each of the mining concessions (which the six companies obtained under contracts of work more than 10 years ago).
Based on the contracts, the government is entitled to 13.5 percent of the total coal output of each concession, and has the right to get its share either in coal or it can ask the coal mining firms to sell its coal share on its behalf and transfer the sales proceeds to the government account.
The government should not have waited so long, but should have foreclosed the assets of the mining companies five years ago. Their failure to hand over the royalties has been a deliberate, well-calculated act in defiance of the government order.
The case would have been different if the default on payment was caused by factors beyond the companies' control. On the contrary, the big coal concessionaires now have very strong financial positions from the windfalls they have booked since early 2007.
Investors should also realize their right to extract our natural resources is tied to several conditions. One of them requires coal concessionaires to pay royalties in the form of 13.50 percent of their respective coal output to the government.
We share lawyers' and Finance Minister Sri Mulyani Indrawati's views that it is entirely illegal for the mining companies to offset the VAT refund (which they claim they are entitled to) against the royalties.
The dispute over the VAT refund began in 2001 after the tax office issued a set of regulations (in 2000) that classified coal as exempt from VAT. This meant mining companies could no longer claim VAT refunds from the government for goods and services they purchased to extract and process coal.
Under the VAT mechanism, only companies subject to VAT can credit VAT paid on input against VAT on output.
However, the mining companies claim their contract of work (signed long before 2000) entitled them to a reimbursement if they were charged additional taxes outside what was stipulated in their contracts.
Even though the State Administrative Court in Jakarta ruled that the State Receivership Agency did not have the authority to collect the overdue royalties, the verdict did not automatically give the mandate to the mining companies to offset the royalties they still owe to the government against the VAT refund they are claiming.
The court ruling is related to different interpretations of tax regulations as applied to coal mining contracts, while the royalties are proceeds from the sales of the government's coal share from mining concessions, as stipulated in the contracts.
But the government should also be blamed in part for the tussle. The tax directorate general should have resolved the dispute over the VAT refund years ago, rather than passing the buck to the State Receivership Agency which does not have any authority over tax, nor royalty matters.
The Finance Ministry (which oversees the tax directorate general) and the six mining companies need to sit down immediately and resolve the dispute once and for all. Taking the case to an international arbitration tribunal would not benefit either party.
Such a messy litigation could plunge the whole coal mining sector into imbroglio.
