Update 1: Govt asks to renegotiate PT INCO's royalty payment
PT INCO will let shareholders to decide
Tuesday, May 29 2007 - 10:14 AM WIB
The government will ask PT International Nickel Indonesia (PT INCO) to renegotiate on royalty payment in a bid to increase revenue from the nickel mining company amid high nickel prices, according to senior offical at the Ministry of Energy and Mineral Resources. Director General of Coal, Geothermal and Mineral Resources Simon F. Sembiring said the government considered the royalty paid by PT INCO was too small in light of the current high nickel prices. According to Simon, PT INCO now pays the government a fixed royalty of US$78 per ton. Simon said the government had set the amount of royalty while extending the firm's contract in 1998, when nickel price stood at $2 per pound. The government extended PT INCO's current contract that is due in 2008 to 2025 "We did not know that the nickel's price would increase. Now, the price has risen to $17 per pound or US$40,000 per ton. Meanwhile, we only get $78 per ton," Simon said, adding that the government would lose $5 million in potential royalty payment from PT INCO in 2008 if the contract is not reviewed. Simon said the government agreed to extend PT INCO's contract in 1998 on the condition that the firm will follow the government's regulation on royalty payment in 2008, which is based on the commodity's price. Meanwhile, PT INCO's president Arif Siregar said the firm had yet to receive an official letter from the government on the renegotiation request. "I haven't received any letter from the government. I am waiting for the letter. I will forward it to the company's shareholders. It is for them to decide what measures to be taken," Arif said. Arif explained that before signing PT INCO's contract exension in 1998, the government rejected the idea proposed by PT INCO of using the volatile price of nickel at the London Metal Exchange as the benchmark to determine the royalty payable by the firm. The government wanted a fixed royalty payment with an estimated price of $7 per pound as a benchmark. "As a matter of fact, during the negotiation (on the contract extension), the price was at $4 per pound. (The amount of royalty then demanded by the government) was actually too burdensome, but we accepted it. Now with price reaching more than $7 (per pound), the government has admitted its mistake and asked to renegotiate," Arif said. (Bernard/Godang)