Vale may be first to wrap up renegotiations

Amahl S. Azwar and Raras Cahyafitri, The Jakarta Post, Jakarta | Headlines | Mon, April 29 2013, 9:26 AM
Publicly listed nickel producer PT Vale Indonesia (INCO) will likely be the first large mining contractor to wrap up mandatory government contract renegotiations, an official has said.

Speaking to The Jakarta Post recently, Energy and Mineral Resources Ministry coal and minerals chief Thamrin Sihite said that the talks with PT Vale Indonesia had proceeded smoothly.

“The only main subject left in the current discussions is about amending royalty payments,” Thamrin said in Jakarta.

The government has been renegotiating contracts of work (CoW) for mining companies to ensure compliance with the 2009 Minerals and Coal Mining Law.

The renegotiations have covered six issues: the size of mining concessions, contract extensions, royalties to be paid, obligations to process raw materials in Indonesia, divestment and using local goods and services.

PT Vale Indonesia, formerly known as PT International Nickel Indonesia, currently operates in Soroako, South Sulawesi, among other places, under a CoW that signed in 1968.

The contract, which has been extended until 2025, gave Vale a concession of 190,000 hectares.

The firm, currently 58.73 percent owned by Brazil’s Vale SA subsidiary Vale Canada Limited, has since agreed to reduce its areas of work as specified under the 2009 law, which limits exploitation concessions to 25,000 hectares, although Thamrin said the government might make an exception for Vale.

“As long as they are committed to a long-term plan for the area, then we may let them have more than 25,000 hectares,” Thamrin said, claiming that concession size would not be a deal breaker in the renegotiations.

Thamrin said that impending requirements to process raw nickel ore in Indonesia would not be discussed, as Vale had already committed to expanding its existing smelter in Soroako.

However, Thamrin said that royalty payments remained the principal topic of discussion with Vale.

“Basically, Vale accedes to the CoW, while on the other hand there is a law that we all must also follow, so we must hold discussions. They need to further discuss the matter with their headquarters,” Thamrin said, adding that he was optimistic that renegotiations could be concluded this year.

Under the Mining Law, royalty payments for nickel ore have been set at 5 percent of total sales and 4 percent for nickel matte and ferronickel.

The current nickel royalty payment for Vale Indonesia has been set at 0.7 percent. In a previous interview with the Post, Vale president director Nicolaas “Nico” Kanter said that the company was “willing to increase the royalty payment in stages, with several years between each phase”.

The company said it would spend US$2 billion to expand its smelter and build additional refining facilities and infrastructure.

Vale said it wants to increase production capacity from 72,500 to 120,000 metric tons of nickel matte a year after expansion was complete in 2017 or 2018.

Separately, Vale deputy president director Bernardus Irmanto echoed Thamrin’s statement, saying that the company wanted to be the first large miner in the country to wrap up its contract renegotiations.

Thamrin, however, did not express similar confidence on the progress of contract renegotiations with other companies, such as PT Freeport Indonesia and PT Newmont Nusa Tenggara.

Both US-based companies have expressed disagreements with items in the contract renegotiations, particularly on divestment and obligations to build smelters.

“The discussions are still ongoing. Basically, the government wants to add more state revenue from their projects compared to the past,” Thamrin said.


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