Royalties slow mining renegotiations

JAKARTA. Issues relating to royalties have become a major concern in the renegotiation of mining contracts and permits, making the process — which should have been settled in 2010, or a year after the issuance of the Mining Law in 2009 — much longer than expected.

R. Sukhyar, the director general for mineral and coal at the Energy and Mineral Resources Ministry, said the talks on royalties were tough due to complexity of each company’s business plan and government policies.

The government expected to have completed renegotiations in March at the latest.

Acording to Sukhyar, a mining company’s business activities, production scale and commodity prices would determine the amount of royalty, which is also known as non-tax state income (PNBP).

 “Most [of the issues] are nailed down and will follow changes in policies,” he said.

Following the issuance of the law, the government is working to adjust the terms of mining contracts of work (COWs) and permits (PKP2B). The renegotiations cover six main issues: the size of mining areas, contract extensions, an increase in royalty payments, the obligation of local processing and refinery activities and the divestment and use of local goods and services.

Under the 2009 Mining Law, all renegotiations involving the holders of COWs and PKP2Bs were supposed to be completed a year after the law was issued. The process took longer than expected.

A renegotiation team was formed in January 2012 to accelerate the process, but things progressed slowly and the agreements reached involved small-size mining companies.

In 2013, the government concluded renegotiations with five companies: PT Mindoro Tiris Emas, PT Irama Mutiara Mining, PT Iriana Mutiara Indeburg, PT Woyla Aceh Minerals and PT Karimun Granite.

With two renegotiations completed in 2012 (PT Tambang Mas Sable and PT Tambang Mas Sangihe), there are now seven compeleted renegotiations with COW holders. The government still needs to work on 29 other COWs.

In 2013, the government also terminated contracts with PT Koba Tin, which is now in the process of restructuring to determine whether its assets will be managed by local administration-owned company or by a central government-owned firm.

Meanwhile, the government managed to complete renegotiations with 15 out of 74 PKP2B holders last year. The companies are PT Selo Argokencono Sakti, PT Banjar Intan Mandiri, PT Dharma Puspita Mining, PT Abadai Batu Bara Cemerlang, PT Mandiri Inti Perkasa, PT Tanjung Alam Jaya, PT Batu Aalam Selaras, PT Ekasatya Yanatama, PT Selo Argokendali, PT Barapramulya Abadi, PT PD Baramarta, PT Kadya Caraka Mulia, PT Jorong Barutama Grestom, PT Trubaindo Coal Mining and PT Kartika Selabumi Mining.

Data from the Energy and Mineral Resources Ministry’s directorate general for mineral and coal showed that 57 PKP2B holders out of a total 74 coal mining companies had partly agreed on the points of renegotiations.

However, there are two PKP2B holders that have not agreed to any points proposed in the renegotiations. The directorate general declined to disclose the names of the two companies.

Sukhyar said the renegotiation with the remaining COW and PKP2B holders would be continued and the government had set a new target to conclude all talks this February or March.

 “Information on royalties will be stated in the revision of a goverment regulation regarding PNBP,” Sukhyar said.

Marwan Batubara of the mining research institution Indonesian Resources Studies (IRESS) said the conclusion of renegotiations with small-size miners showed the government remained afraid of pressure from foreign corporations.

 “Big miners remain reluctant on some terms in the renegotiations, except obligations to use local goods and services,” he said.

 “I’m hoping that all elements, such as the government, the House of Reperesentatives and political parties, unite to show to those foreign companies that we’re solid. We’re concerned that some will use this to obtain political support in exchange for exemptions of certain policies,” he said.

Big miners such as PT Freeport Indonesia, PT Newmont Nusa Tenggara (NNT) and PT Vale Indonesia are among COW holders that have not completed the renegotiations.

Freeport and Newmont have recently enjoyed relaxations from the government regarding the implementation of obligations to process and refine minerals before export.

Starting Jan. 12, the government has implemented the 2009 Mining Law, which requires mining companies to process and refine minerals before selling them overseas and therefore forbid any export of ores.

Following complaints from miners refusing to build smelters due to economic reasons, the government decided to relax the law by allowing half-processed products, including concentrate, to be exported after the deadline.

Among other half processed products, the government has decided to allow copper concentrate with a minimum copper content of 15 percent to be exported, paving the way for Freeport and Newmont to keep selling their concentrate overseas until 2017.

By 2017, the companies will no longer be allowed to export concentrate and must refine their copper ore into copper cathode, which is 99.9 percent copper grade, to be able to continue their business.

Apart from refinery obligations, the government has decided to place progressive export duties as disincentives for miners that continue to sell half-processed products.

The CEO of Freeport-McMoran, the parent company of PT Freeport Indonesia, has been visiting the relevant ministries relating to export duties, which Freeport viewed as violating its COW. The attempt was fruitless. Newmont Mining Corporation, the parent company of NNT, has said it considered legal action over the matter. (Raras Cahyafitri)