Three mining amendments to be completed this year

JAKARTA. The Energy and Mineral Resources Ministry’s directorate general for minerals and coal is expecting to seal amendments to at least three mining contracts of work by this year end.

The three amendments to be completed were those involving copper miner PT Freeport Indonesia, coal firm PT Adaro Indonesia and nickel company PT Weda Bay Nickel, according to minerals and coal director general R. Sukhyar.

“With Freeport, we have to complete the amendment this year. The sooner the better, because the company will also conduct a divestment, which, according to the new regulation, should be started next year,” Sukhyar said.

He was referring to the new regulation, No. 77/2014, which highlights a number of changes from previous regulations, particularly on the divestment requirement for foreign direct investment firms. The regulation states a company involved in underground mining, such as Freeport Indonesia, has to divest 30 percent of its shares to Indonesian shareholders. Freeport Indonesia, which has been operating in the country since 1967, is currently 90.64 percent owned by US giant Freeport McMoRan and 9.36 percent by the Indonesian government.

The regulation states that a company that has been operating in Indonesia for more than five years must have divested 20 percent of its shares one year after the regulation was passed and have completed the divestment within five years after the regulation was passed.

As for Adaro, Sukhyar said, the drafting of the company’s contract of work amendment was waiting for an understanding about a tax issue with the Finance Ministry. Meanwhile, the drafting of the amendment for Weda Bay Nickel had not progressed much yet, but Sukhyar was upbeat that it would also be concluded by the year end.

“The company is still asking for incentives as it is developing a project in the eastern part of Indonesia. However, I said, the incentives issue can be settled while the company is constructing its project,” he said.

As a mandate of the 2009 Mining Law, the government is struggling to renegotiate a number of mineral and coal contracts of work agreed in the past so they conform with the new regulations. As many as 107 contracts of works exist, consisting of 73 for coal mining and 34 for minerals.

Under the law, renegotiation should have been completed within one year after the law passed. However, the complexity of issues in the renegotiations has hampered progress. The government recently finished the amendment to the contract of work with PT Vale Indonesia, the first to be completed since the Mining Law passed.

Out of the remaining 106 contracts of work, the minerals and coal office has sealed memorandums of understanding (MoU) with 83 firms. The MoUs highlight principal agreements from the mining companies regarding adjustments to their contracts of work. Most of the MoUs, which must be followed by the drafting of the amendment to become effective, were inked when the country was in the process of transition from president Susilo Bambang Yudhoyono’s government to the new government.

One issue has been whether the new government would maintain or review policies related to the MoUs for contracts of work.

Indroyono Soesilo, the coordinating maritime affairs minister, who oversees several ministries, including the Energy and Mineral Resources Ministry, said in an interview that the new government was open to the possibility of reviewing the agreements.

“We will discuss it. What is certain is that the MoUs are not contracts, they are only understandings,” Indroyono said.

Sukhyar said that any adjustment to the agreements should be detailed.

“Any change will have consequences. MoUs highlight the central issues that companies have agreed upon,” he said.  (Raras Cahyafitri)