JAKARTA. The government said contract renegotiations with big mining companies were progressing well and that parts of an amendment would be signed early next week, following the signing of 25 memorandums of agreement on Friday.
The Energy and Mineral Resources Ministry’s director general for minerals and coal, R. Sukhyar, revealed on Friday that big miners, such as PT Freeport Indonesia, PT Newmont Nusa Tenggara and PT Vale Indonesia, had agreed to some of points in their amended mining contracts, including the most sensitive issues of royalty adjustment, divestment and the size of mining areas.
The government is trying to adjust the contracts of work of mineral mining companies (KK) and coal mining firms (PKP2B) in accordance with the 2009 Mining Law.
The adjustment covers six issues: the size of mining areas; contract extensions; an increase in royalty payments; the obligation of local processing and refinery activities; divestment; and the use of local goods and services.
“Vale agreed to an increase in royalties. However, it has not offered any figures,” Sukhyar said, adding Vale currently paid 0.9 percent royalties.
In the meantime, the government and Vale are still negotiating on the issue of divestment.
Existing regulations stipulate that foreign-controlled mining companies must divest their shares by 51 percent in five years after they kicked off production. Meanwhile, foreign controlled upstream and downstream mining firms, such as Vale, only need to divest up to 40 percent.
In the case of a listed company, the government set a maximum 20 percent public share holding in the divestment requirement calculation although the real figure may exceed that, according to the ministry’s director for minerals, Dede Ida Suhendra.
“Thus, a listed company needs to divest another 20 percent to meet the requirement of 40 percent. It doesn’t matter whether the 20 percent is also owned by foreign investors as long as the company’s shares are listed here,” Dede said.
Vale is currently 58.73 percent owned by Vale Canada Ltd., 20.09 percent by Sumitomo Metal Mining Co. Ltd. and 21.18 percent by the public, according to figures from the bourse.
When contacted by The Jakarta Post, Vale president director Nicolaas Kanter declined to comment on the progress of the renegotiation.
Another big miner, Freeport Indonesia, a subsidiary of US giant Freeport-McMoRan Copper & Gold Inc., earlier said it agreed to reduce the size of its mining areas by 40 percent from the current 212,000 hectares (ha) to 127,000 ha. It also agreed to increase the royalties it paid to the government to 3.75 percent from 1 percent for gold; to 4 percent from 3.5 percent for copper; and to 3.25 percent from 2 percent for silver.
Freeport president director Rozik Soetjipto said his firm needed to link the renegotiation issue with the extension of its contract as it was developing underground mining.
Dede confirmed Freeport’s proposed condition.
“It agreed to increase the royalties but asked to maintain its contract of work. The issue of divestment also remains in discussion as the company only wants to divest up to 20 percent; the divestment process will be conducted until 2021,” Dede said.
Meanwhile, renegotiation seems to be progressing at a snail’s pace with Newmont Nusa Tenggara.
Dede said Newmont had agreed to reduce its mining area to 70,000 ha from around 84,000 ha.
The government is still seeking a further reduction because, under the law, the permitted mining size is only 25,000 ha. Newmont also insisted that the royalty it had to pay should be in accordance with its contract of work, which is only 1 percent.
Under the law, renegotiations must be completed one year after the law was passed, but the progress has been slow due to the complexity of the issues covered.
Apart from the completion of renegotiations of the 25 mining contracts, renegotiations with 83 companies are partly finished, three companies are still declining to renegotiate their contracts and PT Koba Tin had its contract scrapped by the government.
Koba Tin is now restructuring its ownership.
Sukhyar said the ministry planned to sign memorandums of understanding (MoUs) with the 83 companies next Monday regarding the agreed terms in their renegotiations, while continuing renegotiations on the pending issues thereafter.
Following the signing of the memorandums of agreement on Friday, the ministry must follow them up with new legal contracts.
Source : The Jakarta Post, March 08, 2014