Adjusting Mining Contracts Still a Long Way to Go

By webadmin on 04:48 pm Sep 22, 2012
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Tito Summa Siahaan

The government says it is sticking with a plan to impose a ban on raw mineral exports by 2014, and it wants to hold more discussions with mining companies to find a common ground on renegotiating contract terms.

Under the 2009 law, mining companies must refine their products locally starting in 2014 before shipping abroad.

Thamrin Sihite, director general of mineral resources and coal at the Energy and Mineral Resources Ministry, said that the export ban will be implemented two years from now, according to schedule.

“The law clearly states it, and there is no other interpretation,” Thamrin said in Jakarta on Friday. The government cannot accept any excuses from mining companies that say building a smelter is not economically viable because of the huge investment costs, he said.

“What the government wants is for them to come up with their own terms like more investment in infrastructure or incentive and not opposing the plan altogether,” said Thamrin, reiterating that the government has no plans to postpone the export ban.

In a Bloomberg News interview on Wednesday Deputy Energy Minister Rudi Rubiandini said that there might be some flexibility on compliance.

Thamrin said that the government understands the concerns of mining companies but such concerns should not block the government’s plan. “This plan is for the future,” he added.

He said the government has established a focus group discussion with mining companies to ensure that such concerns will be detailed in a transparent manner.

Thamrin added that the government has received 185 proposals to build smelters, which should be an indication that such investment is economically viable. But at the same time, it is reviewing the proposals as the amount is much higher than the initial estimated number.

“We are quite certain that we don’t need 185 smelters. We see an indication that these companies submitted the proposals to build smelters only to secure export permits,” Thamrin said.

According to Thamrin, one mining firm that views smelter construction as not economically viable is Newmont Nusa Tenggara. That, in turn, hurts the process of contract renegotiation between the government and the miner, he said.

“Smelter construction is probably the most sensitive issue regarding contract renegotiation with Newmont,” he added.

Aside from imposing a ban on material export, the government is currently undergoing a renegotiation with several miners that still operate on the old “contract of works” terms. Mining companies that still work under the old contract include NNT, Freeport Indonesia and Vale Indonesia.

Renegotiations on established contracts compel the government to seek more revenue and larger royalty fees. Miners that secured contract of work deals are exempt from the 2009 law, which only affects miners holding the new type of permit, known as “mining business licenses.”