Freeports?s proposed royalty increase too small: Government

Although Freeport Indonesia has expressed readiness to renegotiate the company?s contracts of work for the operation of its copper and gold mine in Papua, the government is not happy with the company?s proposal, Kontan daily reported on Thursday.

Dede I Suhendar, the director for mining at the Energy and Mineral Resource Ministry, said in Jakarta on Wednesday that Freeport had proposed to increase mining royalty to 3.75 percent from 1 percent at present as part of the renegotiation of its contracts but the proposed increase was still far from the government?s expectation.

He said that the increase proposed by Freeport was still too small. According to Dede, the increase in the royalty payment from Freeport and other mining companies is one of the main agenda in the renegotiation of mining contracts because the average royalty payment paid by mining firms at present is very small.

Dede said that the government?s share from mining revenues is only about 40 percent at present, far lower than those in oil and gas sector where the government?s share reaches about 65 percent from gas production and up to 85 percent from oil production.

In addition to royalty payment, the renegotiations also cover the obligation imposed on mining companies to process their mineral ores in the country and the reclassification of mining areas.

Like other mining companies, Freeport is also required to build a smelting plant in order to be able to process all the company?s copper and gold ore production. If the company refuses to build new smelting plants or increase the capacity of its existing smelting plant, it would not be allowed to export all of its production.

As the company is able only to process about 30 percent of its production in the local smelter, it will be also allowed only export 30 percent of its production next year. Beginning 2014, mining companies are not allowed to export unprocessed minerals in order to comply with the mining law. (*)