The government is looking to finish renegotiating its coal contracts of work before the end of this year, but royalties and export tax remain contentious issues that could halt the talks.
The Energy and Mineral Resources Ministry's director general for mineral and coal, Bambang Gatot Ariyono, said government officials were intensively discussing those issues.
"For now, financial decisions remain a challenge and we need to agree on two things. First, whether royalties should be paid in advance. Second, whether export tax may be implemented in the future and be written in the contract," Bambang said during a talk at the Coaltrans Asia conference in Nusa Dua, Bali.
He revealed that nine companies had agreed on the matters, but that the mineral and coal office had to wait for formulation of the financial obligations from the Finance Ministry.
"We will meet the Finance Ministry next week and ask it to finish the formulation. Then we will talk to the companies to finish the contract. This year we will finish the renegotiation," Bambang said.
The government is aiming to renegotiate numerous contracts of work in the mineral and coal industries following the implementation of the 2009 Mining Law.
The renegotiation looks to adjust several points in the contracts of work, providing greater benefits to the government from the industry throughout the period of the contracts before they become mining licenses.
The 2009 Mining Law aims to change the mining regime from "contract" to "license", which will give the state a superior position.
The renegotiation should have been completed one year after the law was passed. However, the target was missed and the complexity of the related issues have led to the negotiations dragging on.
Six main issues are on the table for renegotiation, namely adjustments to royalties, mining size, obligations for downstream activities, continuance of operation after contract expiry, divestment and the usage of local goods and services.
There are a total of 73 coal contracts of work and 34 mineral contracts of work, known locally as KK. According to the latest data from the mineral and coal office, memoranda of understanding (MoU) for 61 coal contracts 26 for mineral contracts have been signed. The next stage is the drafting of amended contracts.
The inclusion of export tax stipulations in the amended contract is the issue most likely to delay the negotiations further, according to Suyanti Halim, a director with PwC Indonesia, which has surveyed the coal industry regarding its concerns.
"Even renegotiations that have entered into the MoU stage must be put on hold because the government wants to include one more point, namely export tax," Suyanti said, noting that the issue had only recently arisen.
"Now we have seven months left, if the government wants to finish renegotiation this year. But the deadlock is still very tough. If the two parties cannot reach an agreement, there will likely be arbitration," she added.
Arbitration would be bad news for the country, which is currently still dealing with an arbitration appeal by Churchill Mining over the licensing of a coal project in East Kalimantan, which is estimated by the company to contain 2.73 billion tons of coal reserves.