Governors of South Sulawesi, Southeast Sulawesi and Central Sulawesi have rejected the extension of the contract of work of nickel mining company PT Vale Indonesia Tbk. They also requested the government to hand over the concession to the provincial administration owned enterprises (BUMD).
“We considered that there should not be an option for the extension for them [Vale],” South Sulawesi Governor Andi Sudirman Sulaiman said in a hearing with the House of Representatives (DPR)’s Commission VII overseeing energy and industry on September 8, 2022.
Vale Indonesia, a subsidiary of Brazilian company Vale, has a contract of work on 70,923.74 hectares of nikcle mining in East Luwu, South Sulawesi. The contract will expire in 2025 after 54 years of operation.
Too little contribution for long period
Sulaiman explained there were several reasons behind the rejection to extend the contract of work of Vale Indonesia. First, he said the company barely contributed to South Sulawesi province. The company operation only contributed 1.98% to the provincial revenue (PAD) in 2021: Around IDR 55 billion as annual royalty and around IDR 200 billion as revenue sharing fund in 2021
“It is too small as a concession holder who has more than 50 years of contract of work,” he said, adding that the provincial revenue from vehicle tax was far bigger – between 50% and 60% of the provincial revenue or between IDR 2 trillion and IDR 4 trillion.
Secondly, the company has controlled tens of thousands of hectares of idle land in the concession areas. From the 118,000 hectares of the land that the company has controlled for 54 years, only 70,000 hectares have been exploited in South Sulawesi. Sulaiman argued that in the context of land ownership, the company has monopolized the land.
Thirdly, Vale Indonesia has only served as an investor, which has limitation in terms of the capacity to manage natural resources including smelters and other processing plants. The company’s existence, he said, has slowed down the handling of extreme poverty and economic recovery in East Luwu, making the regency an underdeveloped area.
Sulaiman said he had talked to President Joko Widodo on the readiness of the three provincial administrations in terms of paperwork, technical issues and finance to secure special mining permit area. The three provinces will manage the concession after the expiration of Vale Indonesia’s concession in 2025 trough prioritized channel as regulated in Law No. 3/2020 on coal and mineral mining.
“Why don’t we hand over the concession to the administrations? It doesn’t take a rocket scientist to manage a mine,” he said.
Bad precedent for investment climate
Vale Indonesia Director Bernardus Ismanto refused to respond to the governors’ request. “I have no comment for the time being,“ he said.
Meanwhile, Minister of Energy and Mineral Resources Arifin Tasrif said that if the government did not extend Vale Indonesia’s contract, it would have an impact on the mining investment climate in Indonesia.
“It’s bad for the investment climate in Indonesia. We really have to look for what the interests are. Nationally, we have a big interest where we can use natural resources as much as possible for the welfare of the community,” he said on September 9, 2022.
“There are indeed the rules which allow the involvement of provincial administrations for the divestment. We’ll see later,” he concluded.
