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nergy and Mineral Resources Ministry minerals and coal director general R. Sukhyar inherited a huge task when he was appointed to the job in December 2013. Executing regulations requiring an export ban on raw mineral ore and renegotiating mining contracts of work (CoW) with the industry'€™s big boys were among the tasks he faced. The Jakarta Post'€™s Raras Cahyafitri recently talked with Sukyhar on his recent completion of a memorandum of understanding (MoU) with PT Freeport Indonesia, a unit of US-based Freeport McMoRan Copper & Gold Inc., for its upcoming contract amendment, and on his future hopes for the new administration. Here are excerpts of the interview:

Question: What are the benefits for Indonesia in the MoU with Freeport?

Answer: Under Law No. 4/2009 [on mining and coal], it is clear that all contract holders, both coal CoW and PKP2B [coal mining business permits], must adjust.

We respect their contracts until they expire. However, it is a must to have them adjusted, and the question now is what kind of items [in the contract] require adjustment.

The deputy minister [of energy and mineral resources] has initiated the terms of reference for the adjustment that covers six issues; mining size, operation continuity, domestic processing and refining, divestment, state income as well as the use of local content. In the context of state income, there should be an increase in what the state is receiving. This is the first benefit in the renegotiation.

We also have to refer to the 1945 Constitution, which states that all resources in Indonesia create the utmost benefit for the people. It means that all proceeds from mining activities must be enjoyed by the country and its people. The renegotiation has included [share] divestment, which represents the nation'€™s participation. This is the second benefit.

The third benefit is related to the mineral refining process. Apart from higher economic value, there will also be an increase in the intake of local resources, particularly human resources, and developments in technology independence. We cannot let the nation abandon intelligence and wisdom in utilizing its resources.

Why should there be a renegotiation if the law can be directly applied when the companies'€™ contracts expire?

Indeed, the companies should obviously adjust to the law after the contracts expire. However, there are questions on what items must be adjusted, how to adjust them, the extent of adjustment, etc. These matters must be presented to the companies.

Under the 2009 Mining and Coal Law, we no longer acknowledge mining contracts except for existing ones that have yet to expire. In cases where mining contracts are extended, it will be in the form of licenses, either IUP [commercial mining permits] or IUPK [special mining licenses].

The renegotiation is also needed as companies will want to adjust to new government policies. We don'€™t want to create difficulties for them to operate here as we invited them here as required by the 1967 law [the previous Mining Law].

What is making the renegotiations progress faster now?

This is a process. In the early days after the Mining Law was passed, people talked too much about its articles and not enough about how to implement it.

In the end, five years after that, everyone had to comply with the deadline set by the law for mining companies to have their refining facilities or risk being unable to export their ores. Since the middle of 2013, the renegotiation has been better managed as the government has formulated what items must be renegotiated.

Previously, perhaps, there was confusion on what to follow up on. The Mining Law is very firm, stipulating that all adjustments must be completed one year after the law was passed. It means that the renegotiation should have been completed in 2010.

What is the most difficult part in the renegotiation?

Momentum was generated after the issuance of Government Regulation No. 1/2014 [partly stating that semi-finished minerals with certain purity levels could continue to be exported by paying export taxes].

Previously, we had seen the government try to bargain. On Dec. 5, 2013, the government proposed allowing companies committed to building smelters to continue selling ores [the proposal was raised during a session at the House of Representatives'€™ Commission VII on energy and natural mineral resources. The commission rejected the proposal].

Regarding renegotiations, we had no previous reference of what had to be adjusted until the six issues were proposed.

The next difficult part was probably the approach. When there'€™s adjustments to existing rules, business players are usually confused.

Therefore, there should be an approach to sit together and deliver the messages of the adjustment. If we didn'€™t sit together, we wouldn'€™t have known the impact of the adjustment on their businesses.

Moreover, companies currently in production enjoy the comfort and the profits from their activities. When we impose a new fiscal policy, it will disturb them. Because of this, the discussion usually takes a long time. We have to introduce the policy and they calculate their financial ability. We then evaluate it and so on.

During the renegotiations, the most delicate issues revolve around the need for higher state revenue, divestment and continuity of operations.

How is the renegotiation with PT Newmont Nusa Tenggara after it filed an international arbitration against the government?

It'€™s totally stalled. The government is expecting the company will withdraw the appeal.

Freeport said it may sue the government in an arbitration. However, Newmont did it while Freeport did not and it managed to secure a deal with the government. What made the process different?

I don'€™t think Freeport had the courage to file an arbitration. It'€™s just impossible. Everyone in Freeport'€™s business will always enjoy the huge proceeds as the potential [of the Grasberg mine] is very huge. Even though we'€™ve issued it with a new fiscal burden, the company is still making profit.

Unlike Freeport, Newmont'€™s resources here are depleting. It needs to open a new mining site, meaning it has to invest more. Newmont'€™s position is more difficult. Freeport fares better than Newmont in financial capacity. When we plan a new fiscal policy, Newmont needs a very long time to calculate the risk.

Newmont'€™s contract is set to expire in the long term [in 2030]. It actually doesn'€™t have to worry about it and can just open the new site. We are disappointed that it decided to go for arbitration while renegotiations were there. Perhaps Newmont perceived that Freeport'€™s renegotiation journey was not easy. So Newmont seems to be in despair. But this is Indonesia, a civilized nation. The government has never had any intention to bankrupt a company.

What are your suggestions for the new government?

Although we have concluded MoUs with a number of miners, the contract amendments of the companies will be handled by the new administration. They will be signed by the new minister. The next responsibility is to supervise all terms agreed in the MoUs. It is the new government'€™s right to say whether the companies have complied or not.

Can the new government adjust matters it doesn'€™t agree with in the MoU?

Yes, if there are points still not agreed under the MoUs or new things that need to be inserted, they can settle the matters in the amendment. However, the six issues are the principal ones mandated by the Mining Law.