Contract of Work Amendments in Limbo

Amid the unresolved issues surrounding continuity of operation and financial obligations, large-scale mining firms face yet another hitch by-way-of ongoing contract of work amendments.

The Energy and Mineral Resources Ministry’s mineral and coal director general, Bambang Gatot Ariyono, has admitted that issues related to divestment and operation continuity for PT Freeport Indonesia, whose contract is scheduled to expire in 2021, were among big challenges for amendment, as mandated by the 2009 Mining Law.

“I think the amendment still has a long way to go,” Bambang said recently, adding that a similar situation would apply to a contract amendment currently being applied to the contract of work belonging to copper mining giant PT Newmont Nusa Tenggara.

“With Newmont, the main issue is currently its financial obligation. We have to discuss these matters with the Finance Ministry,” Bambang said. 

Under its contract of work, signed in 1991 during the Soeharto regime, Freeport Indonesia had been granted permission to mine copper and gold in Papua until 2021. The company is currently seeking an assurance that its operations can be extended a further 20 years — until 2041 — as had been stated in its aforementioned 1991 contract of work.

Currently, Newmont Indonesia, a subsidiary of US-based Newmont Mining Corp, holds a contract of work that was signed in 1987.

However, according to the 2009 Mining Law, the government is now required to adjust the mining operation regime in the country from contract-based to license-based and contracts can no longer be signed. The Law stipulates that the government must continue to honor an existing contract of work until its expiry date but the law also requires that the government negotiate key matters and adjust in accordance with current regulations. Main negotiation points include a higher contribution paid to the country; an adjustment to the size of the mining area, divestment, operation continuity under a license after contract expiry; an obligation for local processing and refining as well as an obligation to use domestic goods and services.

Freeport Indonesia, a subsidiary of US-based Freeport McMoRan Inc, was in the spotlight recently following the former House of Representatives speaker’s attempt to broker operation continuity in exchange for the company’s 20 percent divestment.

Last week, the mineral and coal office signed contract of work amendments for nine mineral mining firms and 12 coal mining companies. The mineral mining firms whom have agreed to amend their contracts are PT Karimun Granite, PT Paragon Perdana Mining, PT Meares Soputan Mining, PT Iriana Mutiara Mining, PT Tambang Mas Sangihe, PT Gorontalo Sejahtera Mining, PT Iriana Mutiara Idenburg, PT Tambang Tondano Nusajaya and PT Sorikmas Mining. While the 12 coal mining companies whom have agreed to amendments are PD Baramarta, PT Tanjung Alam Jaya, PT Bara Pramulya Abadi, PT Batu Alam Selaras, PT Astaka Dodol, PT Baturona Adimulya, PT Banjar Intan Mandiri, PT Ekasatya Yanatama, PT Sumber Kurnia Buana, PT Selo Argodedali, PT Selo Argokencono Sakti and PT Karya Bumi Baratama.

Inclusive of these new signings, a total of 10 amended mineral contract of work (KK) and 22 coal contract of work (PKP2B) have been signed and according to the government there are currently 34 KK and 73 PKP2B in the amendment pipeline. 

The contract of work negotiations were expected to have been completed no later than a year after the new law had been passed. However, the complexity of the issues has hampered the process. 

The Indonesian Mining Association chairman, Martiono Hadianto — previously the president director of PT Newmont Nusa Tenggara — said earlier that the 2009 Mining Law gave no business certainty for mining firms, particularly those in possession of a contract of work.

“It is said that an existing contract of work must be honored until expiry but elsewhere the law requires that the contracts be adjusted,” he said.

Source:, 29/12/15
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