Export Tax Dispute Leads to Force Majeure for Newmont Nusa Tenggara

The root of the problem is the controversial 2009 Mining Law (which replaced the long standing Contracts of Work and is thus evidence of weak legal certainty in Indonesia). One of the goals of this mining law is to prohibit exports of unprocessed minerals, instead forcing miners to process minerals domestically first in order to add value to the export product. Through this policy the government intends to increase revenues in the mining sector.

The ban on exports of unprocessed minerals was implemented on 12 January 2014 although in a milder form due to widespread criticism and the lack of domestic processing capacity. President Susilo Bambang Yudhoyono signed a last-minute regulation that allows for the continuation of concentrate exports for another three years (while exports of ore remain prohibited). However, companies which continue to export unrefined minerals have to face punitive export duties and are required to show their commitment to build domestic processing facilities (smelters) as the full ban is expected to be implemented in 2017. Companies need to transfer a deposit to the government as evidence of this commitment. For concentrate producers, the deposit is less than five percent of the total investment required for the development of the processing facilities.

The punitive export tax and the full unrefined mineral export ban in January 2017 are a major problem to Indonesian miners. Hadianto said that despite NNT’s willingness to negotiate and cooperate with the government, it has not been able to export copper concentrate since January 2014 as NNT has not been granted an export permit. This has led to a weakening of the company’s financial figures and thus it sees no other option than to declare a force majeure.

Copper and gold mining operations have largely been seized although NNT continues to sell copper concentrates (approximately 81,000 ton between June and the end of 2014) to Indonesia’s only copper smelter PT Smelting, located in Gresik. However, due to PT Smelting’s limited capacity it cannot purchase enough copper concentrate from NNT in order for the latter to continue business operations to run as normal.

NNT and Freeport Indonesia together account for 97 percent of Indonesia’s copper production. NNT is for 56 percent owned by the US-based Newmont Mining Corporation and Japan’s Nusa Tenggara Mining Corporation. In line with the new mining law, seven percent will need to be divested to an Indonesian stakeholder (probably the Indonesian government).

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