W

hen the 2009 Law on Minerals and Coal was endorsed, hopes that Indonesia could maximize its revenue from the mineral and coal mining sector swelled.

However, today, two years after the implementation of the law, which mandated that all existing mining contracts and coal contracts of work be adjusted to accord with the law, hopes have been fading.

Despite a commitment from President Susilo Bambang Yudhoyono to renegotiate unfair mining contracts, talks have gone nowhere, particularly with giant foreign companies, such as copper and gold producers PT Freeport Indonesia (FI) and PT Newmont Nusa Tenggara (NNT).

The Energy and Mineral Resources Ministry’s minerals and coal directorate has said that 65 percent of mining companies operating in the country have agreed to renegotiations.

The directorate said 42 mining companies currently had government kontrak karya contracts and 76 companies had coal contracts of work (PKP2B).

However, the directorate has not revealed which companies have agreed to renegotiate their contracts in accordance with the law.

“We want to work first. We’ll let you know the results later. I can’t promise anything,” ministry minerals and coal chief Thamrin Sihite told The Jakarta Post over the weekend.

Although most companies agreed to renegotiate in principal, disagreements emerged and talks became tougher when it came to the details, Thamrin said.

As part of the renegotiation process, the government and miners are discussing six main issues: the size of mining areas, contract extensions, the amount of royalties, obligations to build processing plants, divestment and the use of local goods and services.

The aim is clearly to ramp up the collection of revenue from the minerals and coal mining sector, which critics say remains below expectation.

Take PT Freeport Indonesia, for example, which operates the Grasberg gold and copper mine in Timika, Papua.

According to its contract, which was extended in 1991, the company must pay the government a 1 percent royalty on its gold sales, 1 percent on its silver sales and 3.5 percent on copper sales.

The royalty amounts are below the percentages stipulated in a 2003 government regulation on tariffs for non-tax revenues for the energy and mineral resources sector.

The regulation fixed gold royalties at 3.75 percent, silver royalties at 3.25 percent and copper royalties at 4 percent.

Last year, the government earned Rp 66.82 trillion (US$6.77 billion) from the minerals and coal mining sector, up almost 30 percent from Rp 51.58 trillion in 2009.

This year, the ministry aims to make Rp 56.86 trillion from the sector.

Critics have said that renegotiations have failed to make progress not due to the small number of companies that have agreed to renegotiate, but due to the failure of giant miners, which contribute the highest revenues and productions, to comply with the 2009 law.

Despite the government’s claims that 65 percent of mining and coal companies have agreed to renegotiate, data from the ReforMiner Institute showed that the compliance of those companies, which were mostly smaller firms, had no significant impact on state revenues.

The ReforMiner Institute said that the companies that agreed in whole or in part to contract renegotiations in compliance with the 2009 Minerals and Coal Law produced less than a third of all the gold, silver, copper, nickel, doré bullion, diamond, granite and tin produced in Indonesia between 2003 and 2010.

Further, the companies that “fully disagreed” to renegotiate as required by law produced the lion’s share of the nation’s commodity production, accounted for 82.43 percent of the country’s gold production, 85.10 percent of its silver production and 100 percent of it copper.

In contrast, all coal companies have come to the bargaining table. The companies that fully agreed to renegotiate were responsible for 25.44 percent of total production, while those that partially agreed accounted for 74.56 percent.

The data, taken from a closed meeting between the Minerals and Coal Directorate General and the House of Representatives’ Commission VII overseeing mining, did not reveal the names of the companies discussed.

It is unclear why the government has tolerated noncompliance with the law. Most of the companies that have disagreed to renegotiate have continued to benefit from their original contracts, including low royalty payments, Indonesian Resource Studies (Iress) group chairman Marwan Batubara told the Post.

“They hide behind the principle of ‘the sanctity of contract’. They don’t want the content of their contracts to be revised,” he argued.

The government had to be more firm in negotiating with companies, Marwan said.

“Renegotiation” was a misleading term as the government was required to ensure that the companies complied with Indonesian law, he added.

“The government has a strong legal basis, which is the 2009 Law on Minerals and Coal, to force the companies to sit together. If they refuse to comply with the law, they can get out of the country. I believe many companies will line up to exploit our natural resources,” he said.

Marwan said that Indonesia need not worry about its image as the stipulations of the 2009 law and the 2003 regulation were common practices in other nations.

“In other countries, royalties for minerals are mostly above 4 percent. Why should we worry? If they don’t want to invest, there are many other companies that have been waiting for the opportunity to replace them,” he said.