Indonesia Seeking Renegotiations on Contracts with Freeport, Newmont

JAKARTA, KOMPAS.com - Indonesia is seeking renegotiations on its contracts with the two largest gold and copper mining companies in the country, PT Freeport Indonesia and PT newmont Nusantara, a minister said.

"Many contracts were made 20 to 30 years ago and conditions have now changed and therefore changes need to be made on the contracts," chief economic minister Hatta Rajasa, said after a meeting to discuss the Master Plan for the Acceleration and Expansion of Indonesia Economic Development (MP3EI) here on Thursday.

Hatta said Indonesia had laws and it would implement them according to the existing provisions. "It will not be forced. All sides will sit and discuss them. Conditions have changed and so a lot of contracts also need to be changed."

He said renegotiation with Freeport Indonesia and Newmont Nusa Tenggara could be carried out because the royalties they had been paying so far were not based on the correct principles. PT Freeport Indonesia had refused to renegotiate its working contract on the ground that the contract was still effective and the company also considered the contract with the Indonesian government to be mutually beneficial.

So far, Freeport has been paying royalties at the rate of only one percent for gold and 1.5 percent for copper. Government Regulation Number 45 of 2003 on the tariff of Non-Tax State Revenue (PNPB) meanwhile sets the gold and copper royalty tariff respectively at 3.75 percent and 4.0 percent of the sales price times tonnage.

The contract with PT Freeport Indonesia was first signed in 1967 based on Law Number 11 of 1967 on Mining Provisions and in 1991 the working contract was renewed and effective for 30 years with a possible extension for two times each for 10 years. Based on financial reports and releases from PT Newmont the company from 2004 to 2010 has paid US$138.8 million in royalty.

Based on Government Regulation Number 13 of 2000 and Government Regulation Number 45 of 2003 the tarrif of royalty for the working contract is 3.75 percent for gold, 3.25 percent for silver and 4.0 percent for copper of the sales. In reality Freeport and Newmont have so far only paid 1.0 to 2.0 percent for gold and less than 3.75 percent for copper of sales.