Gearing up for a round of negotiations with PT Freeport Indonesia, the government is taking a final assessment to exercise its rights under the Mining Law to demand at least 3.75 percent of production sales value as a royalty.
Currently, the government receives 1 percent of Freeport’s gold production sales and 1.5 percent of copper sales.
“If the regulation stipulates that we must receive at least 3.75 percent as a royalty, then we are not going to go lower than that,” Coordinating Economy minister Hatta Rajasa said, referring to government Regulation No. 13/2000 and Regulation No. 45/2004, which stipulate that the royalties of a working contract are 3.75 percent for gold, 3.25 percent for silver and 4.0 percent for copper.
Hatta added that the negotiation with Freeport on the royalty hike would be carried out as soon as possible. The result of the negotiation is expected to alter a working contract previously signed by the government and Freeport.
Freeport won the exclusive right to exploit the Erstberg mine in Papua in 1967 and the Grasberg mine in Tembaga Pura, Mimika, Papua in 1988. In 1991, the government renewed the contract with Freeport, allowing the company to continue mining until 2041.
Freeport spokesperson Ramdani Sirait said in a press release that based on the 1991 contract, the company had paid $13.8 billion in total to the government of Indonesia since 1992 up to December 2011.
The amount includes $8.6 billion in corporate tax, $2.6 billion in employee tax, regional tax and other tax payments, $1.3 billion in royalty payments and $1.3 billion in dividends.
Ramdani added that in the fourth quarter of 2011, Freeport paid $372 million of its contractual obligations to the government.
“Therefore, total payments made by Freeport throughout 2011 was $2.4 billion, equal to about Rp 21 trillion. The payment comprises $1.6 billion in corporate tax, $397 million in employee tax payments and other tax payments, $188 million in royalty payments and $202 million in dividends,” Ramdani said.
Contract renegotiations have long been a major problem in the mineral and coal mining sector.
The 2009 law on minerals and coal mandates that all contracts signed before its implementation have to be adjusted to meet the terms of the law.
Throughout the renegotiation process, the government and miners have discussed six main issues: the size of mining areas, contract extensions, the amount of royalties, obligations to process raw materials in Indonesia, divestment and the utilisation of local goods and services.
Energy and Mineral Resources minister Jero Wacik recently signed a ministerial regulation affirming the ban on metal ore exports from 2014. The regulation stipulates that all raw metals – including gold, copper, nickel, bauxite and iron – have to be processed in the country as mandated by the 2009 Minerals and Coal Law.
The export ban has been deemed necessary given the rapid increase in exports.
Jero said mineral producers had three months after the regulation was issued on February 6 to submit a comprehensive plan to prepare them for the implementation of the ban. Failure to comply will result in the revocation of export permits, he said.