R. Sukhyar, Director General for Coal and Mineral Resources at the Indonesian Ministry of Energy and Mineral Resources, said that Freeport Indonesia and Newmont Nusa Tenggara, two of the largest copper miners in Indonesia, have shown their commitment to build refining facilities (in line with the 2009 Mining Law) by agreeing to transfer a total of USD $140 million to the government as a deposit guarantee. Freeport will transfer USD $115 million, whereas Newmont will transfer the remaining USD $25 million.
The 2009 Mining Law (Minerba Act) is a controversial new law (replacing the previous 'Contract of Work' system) that includes a ban on the export of unprocessed minerals (in effect since 12 January 2014) and an acceleration of the share divestment requirement (requiring mining companies to achieve majority Indonesian ownership within ten years from the start of commercial production).
Regarding exports, the Mining Law stipulates that ore needs to be processed domestically first before it is allowed to be exported. As such, Indonesian mining companies are forced to build smelters. Few companies met the deadline at 12 January 2014 as there had been speculation that the government would fail to implement the new law as it breached long-standing Contracts of Work and implies declining government revenue from the mining sector in the next couple of years.
Just before implementation of the export ban on 12 January 2014, Indonesian President Susilo Bambang Yudhoyono toned down the ban by signing a regulation that allows for the continuation of concentrates exports for another three years (while exports of ore remain prohibited). However, those companies that continue to export unrefined minerals have to face punitive export duties and require to show their commitment to build domestic processing facilities as a full ban is expected in 2017. Companies are requested to transfer a deposit to the government as evidence of this commitment. For concentrate producers, the deposit is less than five percent of the total investment required for development of the processing facilities.
Both Freeport Indonesia and Newmont Nusa Tenggara had already processed their copper into concentrates but are still short of the refining requirement as has been set in the 2009 Mining Law.
The Indonesian government has set an export quota of 850,000 tons of copper concentrates (worth around USD $1.5 billion) for both miners but will not issue an export permit before the companies agree with terms of the ongoing contract renegotiations.
President Director of Freeport Indonesia Rozik Soetjipto stated that his company will partner with state-controlled enterprise Aneka Tambang to establish a USD $2.3 billion copper smelter in Gresik (East Java). The groundbreaking of this project is expected in the second half of 2014. This smelter will be able to produce 400,000 tons of copper cathodes from 1.6 million tons of copper concentrates. Newmont Nusa Tenggara will also supply its concentrates to this facility.
The Indonesian government will continue its punitive export duty system for those companies that are allowed to export certain concentrates up to 2017 but will provide incentives by cutting tariffs when a miners shows commitment to establish processing facilities. Indonesian Industry Minister MS Hidayat warned that "if the smelter is completed in 2017, then the duty will be zero, but if the company fails to meet the deadline, then the government will increase the export tariff and confiscate the deposit."