Govt stands firm on Newmont arbitration

JAKARTA. The Indonesian government appears undeterred by a request for international arbitration filed by PT Newmont Nusa Tenggara (NNT), a local subsidiary of Newmont Mining Corp., with the country’s top economic minister questioning the “good intentions” of the US company.

Coordinating Economic Minister Chairul Tanjung said Wednesday the government was “disappointed” with the lawsuit, particularly because it was filed amid ongoing talks between the government and Newmont over the company’s operations in the country.

“Of course, this has caused us to review again whether Newmont still has good intentions in Indonesia,” Chairul told reporters at the State Palace in Jakarta. “We are still in the middle of negotiations, but suddenly they are filing the lawsuit. That’s not good [faith].”

Newmont, which operates the Batu Hijau copper mine in West Nusa Tenggara, filed for international arbitration this week over Indonesia’s raw mineral export ban, which the company claims violated its contract of work (CoW) with the government.

President Susilo Bambang Yudhoyono has already issued an exemption for Newmont and Freeport-McMoRan Copper & Gold Inc. from the new Mining Law, which forbids the export of raw ore beginning in 2014, by signing a regulation allowing the export of semi-processed copper concentrates.

Weeks later, however, Finance Minister Chatib Basri introduced a progressive export duty on copper concentrates in a move to compel mining firms to build smelters to add value to the nation’s downstream mineral sector. The duty is steep — 25 percent, incrementally increasing every six months until maxing out at 60 percent in 2017.

The copper concentrate exemption and export duty seems specifically targeted at the two American companies, which jointly account for 97 percent of Indonesia’s total copper output.

Last month, Newmont declared force majeure at its Batu Hijau mine and shut down operations, saying it could not afford to ship its production with the hefty duty.

Like the coordinating economic minister, Chatib also expressed defiance over Newmont’s move to seek international arbitration.

“The government is still firm [over the export tax],” the finance minister said on Wednesday. “Is the company building a smelter? If not, then I will not give any leniency, because the purpose of the export tax is to compel companies to build smelters.”

Prior to the imposition of the Mining Law, Newmont had argued that building mineral-processing smelters was not commercially feasible. The Energy and Mineral Resources Ministry has confirmed that Newmont had not yet put down money for the surety bond, a fund held by the government signifying a mining firm’s commitment to build smelters.

Law and Human Rights Minister Amir Syamsuddin also challenged Newmont’s move, saying the US company had acted “too hastily”. “The coordinating minister, I believe, is still weighing things to find a solution. The problem is that they [Newmont] have yet to build smelters.”

Arbitration between a private company and a government normally takes a minimum three years.

The Indonesian government is currently locked in a legal battle with UK-based Churchill Mining Plc. In 2009, the London-listed mining firm filed a request for arbitration after its mining license for a coal site in East Kalimantan had been revoked.

In February this year, the International Center for Settlement of Investment Disputes (ICSID) rejected the government’s request to dismiss the Churchill case. It was the first blow for the government in what could be a lengthy legal battle that, if lost, could compel Indonesia to pay up to US$1.05 billion in fines. (Ina Parlina and Satria Sambijantoro)