Freeport, Newmont May Yet Find Way to Avoid Mining Ore Export Tax

Contract of works holders such as Freeport Indonesia and Newmont Nusa Tenggara may be able to avoid the recently imposed export tax on unrefined mineral commodities, according to a document obtained by Jakarta Globe today.

In a letter dated October 1988, then finance minister, JB Sumarlin, told his director general for taxation that contract of works holders were granted the status of “lex specialis” when it comes to any changes in the tax regime.

“In other words, the law on taxation is implemented on all unless it was being specified in the contract of works,” the minister said in the letter.

This may boost both companies’ claims that the contract of works protected them from the new tax regime.

Newmont’s contract of work has not been updated since it was signed in 1986. Freeport’s 1967 contract of work was extended in 1991, ensuring its right to exploit the Grasberg mine in Papua until 2021.

As part of its policy to ban the exports of unprocessed mineral ores, of which the Jan. 12 deadline was enforced, the government imposed export duties of between 20 percent and 25 percent on mineral commodities. The rate will then steadily increase every six months until it reaches 60 percent by the end of 2016.

Miners decried the new taxes, saying that such a rate was likely to kill off their businesses and decrease the possibility of them making expensive investments to build refining facilities.

“The CoW states that PT-FI [Freeport Indonesia] shall not be subject to taxes, duties or fees subsequently imposed or
approved by the Indonesian government except as expressly provided in the CoW,” Freeport-McMoRan said in a statement last week. “The January 2014 regulations conflict with PT-FI’s contractual rights.”

It added that the miner was working with the government to clarify the situation and defend its rights.

Newmont Mining, the parent company of Newmont Nusa Tenggara, voiced similar concerns and went as far as raising the possibility of mounting legal challenges against the Indonesian government.

But Hikmahanto Juwana, a University of Indonesia law professor, dismissed the relevance of the finance minister letter, saying that contracts of work were never granted lex specialis status.

“The contract of work is an agreement,” Hikmahanto said, adding the status of lex specialis was granted only for texts of equal significance to the law.

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