Big miners cramp govt in contract renegotiations
Amahl S. Azwar, The Jakarta Post, Jakarta | Business | Thu, January 03 2013, 10:57 AM
Paper Edition | Page: 3
The government already faces difficulties in meeting the December 2013 deadline to wrap up all mining contract renegotiations. Large contractors such as Freeport and Newmont refuse to meet some of the terms of the 2009 Mining Law, a top official says.
The director general for coal and mining affairs at the Energy and Mineral Resources Ministry, Thamrin Sihite, acknowledged that it was probably impossible to finish all the renegotiations, especially giant mining firms working under contracts of work (CoWs), by the end of 2013.
“We will pull out all the stops to meet the deadline through intense dialogue with delinquent contractors. We want to reach a position where the new contracts will not harm their businesses here,” he told The Jakarta Post over the weekend.
The renegotiations cover six main issues: increase in royalty payments, local smelting of ore, use of local goods and services, divestment, contract extensions and the size of mining areas.
The renegotiation team was formed in January 2012 with Coordinating Economic Minister Hatta Rajasa leading the panel. They were expected to finish their work by the end of 2013.
As of December 2012, contract renegotiations for only two firms operating under the CoW have been concluded, PT Tambang Mas Sable operating in northern part of Sumatra and PT Tambang Mas Sangihe, whose activities are mainly in the eastern part of Indonesia.
The two firms are still in the exploration phase and were due to sign new contracts this month. Twelve other firms with mining licenses (PKP2B) such as PT Bangun Banua Persada Kalimantan and PT Sumber Kurnia Buana are also due to sign new contracts this month.
With only two renegotiations completed last year, the government still has 97 outstanding contracts to deal with in 2013, under both the CoW framework and the PKP2B scheme.
As many as 31 CoW mining firms and 62 PKP2B contractors have expressed degrees of readiness to comply with some aspects of renegotiation while four CoW holders have yet to agree on any settlement terms at all.
In May 2013, according to Thamrin, the government aims to settle the contract renegotiations for 13 CoWs and 11 PKP2Bs while in the second half of the year, the ministry plans to conclude the amendments for 22 CoWs and 5 PKP2Bs.
Mining colossi such as PT Freeport Indonesia, PT Newmont Nusa Tenggara (NNT) and PT Vale Indonesia, object in general to having their working areas reduced to 25,000 hectares maximum and refuse to build smelters to process ores locally.
These considerations apart, it is the increase in royalty payments which is the most thorny issue, particularly with the gigantic firms.
“As for the adjustment of working areas, the government is willing to grant the firms’ wishes as long as they provide guarantees of long-term planning for their operations here,” he said.
In October, president director of publicly listed nickel producer Vale, Nicolaas Kanter, told the
Post that the firm was still discussing the working area adjustment with the government, claiming that while Vale’s mining area was over 190,000 hectares, but only around 8,000 hectares are actually in
production.
Kanter expected royalty payments to increase gradually over the next five years, and the firm plans to spend up to US$2 billion on smelter expansion.
Currently, Vale pays royalties on nickel of only 0.7 percent. Under the 2009 law, the royalty payment for nickel ore should be 5 percent of total sales, while that for nickel matte or ferronickel is 4 percent.
NNT, whose decision to lay off some of its workers in 2012 has put the company under the media microscope, has yet to agree to build its own smelting plant to process its gold and copper concentrates or and has refused to divest, the Post has reported.
On the other hand, Freeport Indonesia, whose parent company is US-based Freeport McMoran Copper & Gold Inc., had said that it needed “assurance” from the government regarding its contract extension as the company plans to invest around $17 billion for the 2012-2041 period.
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PS: where do we go from here, Uncle Rockhound...