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Challenging Newmont

Translator

Editor

30 July 2014 14:28 WIB

TEMPO.CO, Jakarta - So far, mining giant Newmont Nusa Tenggara is not budging from its plan to take the government's case of taxing mineral ores to arbitration. The company has every right to take this position. But the government's decision to oppose it, after its offer of negotiations was rejected, is not an arbitrary stance.

The government's move to consider this lawsuit is a way for the regulator to uphold the law. And it should not be seen as excessive if, when it appoints a legal team and prepares for the hearing, the government initiates a counter-suit at a different arbitration court.

The relevant legislation is Law No. 4/2009 on Mineral and Coal Mining. This law, which came into effect on January 12, 2014, requires minerals to be processed domestically before being exported. Along with this law, the government also issued regulations on exports, export duties and a ban on exports of copper concentrate, which will come into force in January 2017. All these regulations are aimed at guaranteeing the supply of raw materials for the mineral processing and purification industries as well as preserving the environment.

Newmont has logged its objections to these new rules, claiming it is unable to fulfil its obligations to buyers because of the export ban on ores and the export duties on mineral concentrates. Newmont maintains that this new tax is a breach of their agreement, which according to Newmont, does not obligate it to pay export duties.

Newmont had initially taken the negotiation route to submit is objections, but before anything was ever reached the mining company took its case to the International Center for the Settlement of Investment Disputes. Not surprisingly, the government was taken aback by the move and asked Newmont if it still wanted to negotiate or not. In any case, negotiations are still the best way to find a mutually beneficial solution. But if the door has been closed, several possibilities need to be considered, as well as the benefits that would be obtained from a legal dispute at an international tribunal.

Newmont may simply want to continue with the terms of the agreement it signed with the Indonesian government, as well as avoid extra costs that it had not calculated at the outset. The problem is that the company's interpretation of its legal basis may be very different from that of other parties.

Consider the government's position. In the contract, the government is not the regulator, but a partner or legal entity. As the regulator, the government can apply new rules as long as it is in the public interest. Export duties, seen in this context, should not be seen as a problem-they are not a tax. The aim is simply to push for the construction of smelters.

The government could use this argument in court. It is a strong position. But it should still consider the possibility of losing and calculating which state assets could be confiscated in the eventuality of such a loss. (*)



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