Export Ban Dispute Newmont Nusa Tenggara vs Indonesian Government
Whether Newmont Nusa Tenggara (NNT) will file for international arbitration over a six-month old export dispute with the Indonesian government remains unclear. Although many analysts would like to see international arbitration over this case, such a step would imply several risks for the copper miner (which is for 56 percent owned by US-based Newmont Mining Corporation and Japan’s Nusa Tenggara Mining Corporation). The source of the dispute is Indonesia’s recently-introduced ban on exports of ore concentrates.
This export ban is part of the Law 4/2009 on Mineral and Coal Mining (Minerba), popularly known as the 2009 New Mining law. With this ban, the Indonesian government aims to spur development of domestic downstream processing industries in order to produce value-added products, thus generating more revenue. However, for those companies that traditionally mainly exported raw materials, this is a major problem, and also unfair as the new law is not in line with long standing contracts of work between miners and the government. Although the government had given five-years to miners for the development of smelters (processing facilities) before the export ban would be implemented on 12 January 2014, few companies complied as they were hesitant to invest heavily in processing facilities. Most miners in fact expected that the government would abandon this controversial new law.
When the export ban became a reality in the second week of January 2014, Indonesia still lacked processing facilities, implying that the full implementation would lead to a near stop of mining exports, thus placing more pressure on the country's trade deficit. For that reason, the government provided a temporary amendment. If a miner can provide evidence that it is serious about building smelting facilities, then exports of unprocessed minerals are temporarily allowed (until 2017). However, the miner will have to face progressive export taxes (increasing from 20 percent in 2014 to 60 percent in mid-2016). Freeport Indonesia, which operates the world's largest gold mine and third-largest copper mine (both located in Indonesia), has been granted this reprieve.
As NNT was unwilling to cooperate with the government, it has been unable to export copper and gold concentrate since January 2014. In fact, production of copper and gold has seized since 6 June 2014 as stockpiles of both commodities reached 80,000 tons. NNT does sell copper concentrates to Indonesia’s only copper smelter PT Smelting (located in Gresik) but due to PT Smelting’s limited production capacity it cannot absorb enough copper concentrate from NNT in order for the latter to continue production operations as normal.
Last month, NNT said that - due to the government’s stance - it sees no other option than to declare a force majeure at its Batu Hijau copper mine in Sumbawa (West Nusa Tenggara). Reportedly, 80 percent of the company’s workers have been put on leave with reduced salaries.
In response to NNT’s statement to seek international arbitration, the Indonesian government threatened (earlier this week) that it could terminate the US miner’s mining contract as it has defaulted on its contract by halting production activities altogether. However, the government added that if NNT would refrain from requesting international arbitration, then both sides could still try to find a solution through negotiations. The government proposes to give back the export permit to NNT (including lower export taxes), provided that the latter will invest in smelting facilities.