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Publicly listed nickel producer, PT Vale Indonesia, was “open to the possibility” of increasing its royalty payments in line with the government’s proposal in the renegotiation of its contract of work (CoW), the company’s top executive has said.
Vale’s president director, Nicolaas “Nico” Kanter, said on Tuesday at the Energy and Mineral Resources Ministry in Jakarta that the company, formerly known as PT International Nickel Indonesia (Inco), was committed to increasing the royalty payments “step by step”.
“I can’t reveal the higher royalty figure for the government just yet, but I can assure you that we are committed to increasing the royalty payments gradually,” he said on the sidelines of an event marking the 67th anniversary of Indonesia’s mining and energy sectors.
The government is currently negotiating COWs held by the country’s mining companies to ensure that all contracts are in line with the 2009 Minerals and Coal Mining Law. The renegotiations cover six main issues, namely the size of mining areas, contract extensions, the amount of royalties to be paid, obligations to process raw materials in Indonesia, divestment and the utilization of local goods and services.
Under the new Mining Law, the royalty payment for nickel ore is 5 percent of total sales, while that for nickel matte and ferronickel is 4 percent, respectively. Currently, the nickel royalty payment for Vale Indonesia was 0.7 percent, Nico said.
“Based on our discussions with the government so far, we are willing to increase the royalty payment in stages, with several years between each phase,” he said.
According to Nico, Vale Indonesia expects the royalty payments to be increased gradually as over the next five years, the firm is due to spend up to US$2 billion to finance a smelter-expansion plan, building additional refining facilities and infrastructure.
“Therefore, we [Vale] need for the renegotiation process to be completed as soon as possible so that the company has assurances before we carry out our next steps,” he said.
After the expansion, which is expected to be finished in 2017 or 2018, Vale hopes to see its production capacity increase from 72,500 metric tons of nickel matte per annum to 120,000 metric tons.
Nico added that the company was also renegotiating to adjust its mining area to the new law, which stipulates the maximum size of an individual plot given to a firm for exploitation must not exceed 25,000 hectares.
Currently, Vale’s mining area comprises 190,513 hectares, but only around 8,000 hectares of the total are in production, according to Nico.
“There will be a reduction of the mining area but we are still discussing how much our area will be trimmed,” he said.
Separately, the Energy and Mineral Resources Ministry’s minerals and coal director general, Thamrin Sihite, told reporters on Tuesday that the government was still expecting all mining companies, including Vale Indonesia, to comply with the new regulations, including on the reduction of mining areas and royalty payments.
“We are still discussing these issues,” he said.
Vale Indonesia is 58.73 percent owned by Vale Canada Limited, 20.09 percent by Japan-based Sumitomo Metal Mining Co. Ltd and 21.18 percent by the public. Under the contract of work signed in 1968, the company operates nickel mining areas in Bahodopi, Central Sulawesi and in Sorowako, South Sulawesi.