Mining in Indonesia: Newmont Nusa Tenggara Drops Arbitration Case
Reportedly, Newmont Nusa Tenggara (NNT) will not seek international arbitration at the Centre for Settlement of Investment Disputes (ICSID) in Washington (USA). Previously, the miner threatened to file for arbitration in an attempt to force the Indonesian government to cancel the recently introduced ban on exports of unprocessed minerals as well as to abort higher export duties. NNT is a subsidiary of Newmont Mining Corporation that operates the Batu Hijau mine, an open pit copper and gold mine in Sumbawa.
In January 2014, the controversial ban on exports of unprocessed minerals and ore (part of the Minerba Act, or, 2009 Mining Law) was introduced. This ban aims to boost domestic processing facilities and production of value-added products. Although this ban had been announced several years earlier, few expected the government to implement it as it was not in line with existing contracts of work between miners and the government. Moreover, Indonesia still lacks sufficient domestic processing facilities (smelters), implying that mining exports would plunge considerably. However, a last-minute government amendment to the ban provided temporary room for adjustment. If a miner can provide evidence that it is serious about building smelting facilities, then exports of unprocessed minerals are temporarily allowed (until 2017). However, the miner will have to face progressive export taxes (increasing from 25 percent in 2014 to 60 percent in mid-2016) and higher royalties.
The reason why NNT objects against the implementation of Law 4/2009 on Mineral and Coal Mining (Minerba) is that this new law is not in line with the contract of work between NNT and the Indonesian government, and is also not in line with the bilateral investment agreement between the Indonesian and Dutch governments (NNT is majority-owned by Dutch based Nusa Tenggara Partnership BV based in the Netherlands). Due to the export ban, NNT announced in June 2014 that it sees no other option than to declare a force majeure at its Batu Hijau copper mine in Sumbawa (West Nusa Tenggara), with the risk that 80 percent of the company’s workers will be put on leave with reduced salaries.
On Tuesday (26/08), Chief Executive of NNT, Martiono Hadianto, stated that the miner had reached a “constructive solution” over new mining rules, and expects to resume production at its copper mine soon. He declined, however, to provide additional details. It is assumed that NNT and the Indonesian government will agree to a package of renegotiations similar to that of Freeport Indonesia, which was allowed to resume copper concentrate exports in exchange for higher taxes and royalty payments as well as the construction of smelting facilities.
R. Sukhyar, director-general of coal and minerals at the mining ministry, provided some more information saying that NNT still needs to negotiate a Memorandum of Understanding before copper exports can be resumed. He added that NNT has already agreed to pay an export tax but further negotiations are needed regarding royalties.
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