Indonesian ministry may recommend easing of Freeport tax this week

JAKARTA, March 3 Sun Mar 2, 2014 10:52pm EST

JAKARTA, March 3 (Reuters) - Indonesia's mines ministry could recommend as early as this week that Freeport-McMoRan Copper & Gold receive a reprieve from a controversial tax that has halted copper exports for more than two months, a government official told Reuters.

Freeport and fellow U.S. miner Newmont Mining Corp have refused to pay an export tax on mineral concentrates imposed in January, which rises from 25 percent this year to up to 60 percent by the second half of 2016, saying it breaches their contracts.

To win the tax reprieve, Freeport must pay the government a 5 percent security bond for the construction of a smelter and finalise supply agreements with smelter-building companies, said Sukhyar, director general of coal and minerals for the mines ministry.

"After (meeting those conditions) ... I will ask the ministry of finance to reduce, discount or even eliminate the export tax," he said after a book launching event over the weekend in Jakarta.

Freeport declined to comment. Finance ministry officials were not immediately available.

The export tax was introduced as part of a series of new mining rules, which include a mineral ore export ban, to force companies to build smelters and process raw materials in Indonesia.

Disputes and confusion over the new rules have halted around $500 million worth of monthly mineral ore and concentrate exports.

Executives from Freeport and Newmont, which together produce virtually all of Indonesia's copper, have been in talks with the government for weeks over the tax and the building of smelters.

A breakthrough appeared to have been reached last week, when Indonesia signalled it was ready to ease the export tax on firms that proved they were serious about building smelters in the country, the first rollback of its new rules.

Freeport, which warned last week it may need to declare force majeure on copper concentrate sales if the dispute drags on, has submitted a request to the mines ministry for a permit to resume concentrate exports.

"For that kind of approval, we need proof from Freeport that they are serious on building a smelter. They don't have to build it alone, but can cooperate with others," Sukhyar said.

The mines ministry has given Freeport and Newmont until Friday to sign agreements detailing the volume of copper concentrate they will supply to companies that are building smelters in Indonesia - PT Indosmelt, PT Nusantara Smelting and PT Aneka Tambang (Antam).

Once these are signed and the security bond given, the mines ministry will submit its recommendation to the finance ministry, which has the final decision on the export tax, Sukhyar said.