* Freeport could face $5 bln in extra taxes over next 3
* Export taxes could breach Freeport, Newmont contracts
* Goverment says will stick to its guns
* Arbitration could be a possibility -source
By Randy Fabi and Michael Taylor
JAKARTA, Jan 17 Indonesia's top copper producer,
Freeport McMoRan Copper & Gold, faces paying billions of
dollars more in taxes if it fails to convince the government to
back down from a new export tax, a dispute sources say may end
in legal arbitration.
Freeport and fellow miner Newmont Mining, which
together account for virtually all copper mining in Indonesia
and are exempt from export taxes under their current contracts,
are expected to meet with finance ministry officials later on
President Susilo Bambang Yudhoyono on Saturday gave Freeport
and Newmont a reprieve from a controversial mineral ore export
ban, but then surprised the U.S.-based majors by imposing an
Freeport, which produces 73 percent of Indonesia's copper
output, has halted concentrate exports from the world's
fifth-largest copper mine since Dec. 15, and has yet to resume
shipments as it waits for greater clarity from the government on
the new policies.
"International arbitration is a probability, if the
government does not move on the issue of the export tax," said a
source close to the situation, who asked not be named because of
the sensitivity of the matter.
Freeport declined to comment but a company spokeswoman said
before the ban took effect on Sunday that legal action was seen
as a last resort.
Under the new regulations, a tax for copper concentrate
exports will be raised to 25 percent from 20 percent and levied
on Freeport and Newmont for the first time. The tax will rise to
60 percent by the end of 2016, before exports of concentrate are
banned from 2017.
As a result, Freeport could pay around $5 billion more in
taxes over the next three years, according to Reuters
calculations based on the company's production forecasts and
assuming copper prices of $3.50 a pound, and estimates by two
Indonesia's tough new policies are aimed at forcing miners
to process mineral ores within the country, part of plans to
transform Southeast Asia's biggest economy from being simply a
supplier of raw materials into a producer of finished goods.
That would increase its foreign revenue and narrow the
current account deficit, which has undermined investor
confidence and battered the rupiah currency.
Under their current contracts, Freeport and Newmont are
exempt from paying export taxes or any other government charges
not included in their agreements. The two firms pay corporate
income taxes of 35 percent plus royalties and other fees.
"The proposed export tax would be a brand new tax - on top
of all the others we are obligated to pay - not accounted for in
the Contract of Work we signed with the government," said
Newmont spokesman Omar Jabara.
"The contract explicitly sets the types and levels of taxes
and rate we are required to pay, thereby contractually assuring
predictability and stability around our existing tax
Freeport in 2012 paid the government around $1 billion in
taxes and fees, while Newmont has given more than $3 billion
Newmont, which produces about 24 percent of Indonesia's
copper output, said operations at its Batu Hijau mine remained
normal and its first concentrate shipment of the year was
expected later this quarter.
Government officials said they were open to discuss the
matter with Freeport and other miners, but would not back down
from the new regulations.
"All are treated equally by the law. The government has
prepared themselves just in case Freeport and Newmont or any
other (miners) take our policy to arbitration," said Bachrul
Chairi, director general of foreign trade at the trade ministry.
The government is under pressure ahead of elections this
year to ensure that foreign companies are not seen winning more
favourable treatement than local miners.
The finance minister earlier this week told reporters the
new regulation was a "form of punishment" for companies that did
not have domestic smelters.
Union officials have warned the new tax will force layoffs
at Freeport, but a top company official said there were no such
"It is an absurd policy," said Syahrir Abubakar, executive
director of the Indonesian Mining Association. "With the high
export tax, the mining industry will be forced to stop and close
Freeport and Newmont are also involved in contract
renegotiations with the government, and any legal action on tax
could hinder their hopes of an extension agreement that would
allow them to work longer at their lucrative mines.
Freeport's copper production in Indonesia provides around 19
percent of the company's total global revenue, and its contract
is due to expire in 2021.