Karebbe Temporary Suspension
1. Is it true the Karebbe Project is suspended?
A Groundwork at the Karebbe dam site has been temporarily suspended,
pending the receipt of certain forestry related approvals required
to amend the existing forestry permit. Engineering work on the project
is moving forward and work under certain key contracts continues,
including the contract for the delivery of the turbine generators.
2. What is the reason for this suspension of work at the
Karebbe site?
A We obtained a permit from the Forestry Department relating to a
parcel of land outside the Company’s Contract of Work area.
The terms and conditions of this permit do not meet all of the needs
of the project. For example, the term of the permit is 5 years and,
although the term is extendable, such extension would be at the discretion
of the Forestry Department and there is no guarantee that such an
extension would be granted. This project represents a very significant
investment and the terms of the current permit do not provide sufficient
legal certainty for such an investment. Further, the permit specifies
other conditions which must be met before groundwork can resume. We
are now working together with the Forestry Department to amend the
existing permit and to satisfy all necessary requirements to recommence
Karebbe groundwork as soon as possible.
3. The Company has also previously announced a capital
program involving certain expenditures to optimize the annual production
capacity at its processing facility to 200 million pounds. Is this
capital program proceeding or is it suspended as well?
A The optimization project continues. The suspension we have described
only affects the Karebbe dam.
4. What is status of Karebbe Project?
A Geotechnical studies to determine the best position for the dam
have been completed, and PT Inco is moving forward with engineering
work. Work on certain key contracts continues, including the contract
for the delivery of the turbine generators. Our engineers are finalizing
the design for the construction of the diversion channel and are preparing
a bidding document for the main dam and concrete structures. The project
team continues the quarry developments inside the Contract of Work
area.
5. What will the impact be on the project cost and schedule?
A We are working together with the Forestry Department to amend the
existing forestry permit and satisfy all the necessary requirements
to recommence Karebbe groundwork as soon as possible. Until the Company
has more information on how issues relating to the forestry permit
can be resolved, the Company cannot give an accurate estimate of the
effect on the project schedule and budget. We are doing as much as
possible to minimize the impact by suspending certain works and continuing
other critical works. While Karebbe groundwork is suspended, certain
other activities are moving forward. Geotechnical studies continue
and PT Inco is moving forward with engineering. Work on certain key
contracts continues, including the contract for the delivery of the
turbine generators. The Company will provide updates on any significant
developments as soon as available.
At the same time the Company is making progress and expects to continue
to make progress on its previously announced optimization program
to increase annual production to 200 million pounds of nickel in matte.
The Company anticipates that production levels will continue to rise
from its 2004 record production level of 160 million pounds through
2009.
6. What will the impact be on the Company’s operations
by increasing production through implementation of the optimization
program without completing the Karebbe dam at the same time?
A The Company will continue its Optimization Program within the limits
of available hydro, diesel and steam generated energy. Consequently
the company may not achieve the production targets of the Optimization
Program due to energy availability constraints and it may be more
exposed to water supply risk in dry years
7. Why does PT Inco not have the permit it needs to continue
work on Karebbe dam?
A We have obtained all of the key permits from the relevant authorities,
including the Department of Energy and Mineral Resources and the Department
of Forestry. However, one permit which was received from the Department
of Forestry includes certain terms and conditions which do not provide
sufficient legal certainty for an investment of this nature. While
we received the forestry permit that was applied for, we did not appreciate
the conditions that would be attached to the permit. Regulation of
forestry matters in Indonesia is very complex and not always suited
for mining or industrial development. The regulatory picture is further
complicated by overlapping jurisdiction among various central and
regional authorities. We are now working together with the Forestry
Department to resolve the outstanding issues to enable us to receive
an amended permit that would meet our requirements.
8. How long this suspension last?
A At this point of time, we cannot give an accurate estimate. However,
we will continue to work with the Department of Forestry to satisfy
all necessary requirements to recommence groundwork on Karebbe.
9. Does this situation reflect poor relations with government
or regulatory authorities at any level, including the regions?
A No, it does not. We have good relationships with, and strong support
from, all levels of government, including the central government,
the Province of South Sulawesi and the Regency of East Luwu.
10. What demobilization steps are being taken as part of
the suspension? Is there any impact on the local and community caused
by this suspension? How many construction employees will be impacted?
A The contractor responsible for the diversion channel which had 26
employees at the site has demobilized. PT Inco’s project team
has been temporarily assigned to other projects within PT Inco’s
operations.
As the project was not yet in the construction stage, a very limited
number of other contractors have been demobilized. Together with local
governments, we are preparing socialization programs for community
to ensure that the community are well aware about the situation.
11. Have you been working without a forestry permit until
now?
A We have been working inside the Contract of Work area where we have
all of the rights we need and we do not need a forestry permit.
We were about to start the work of diversion channel which is outside
the Contract of Work area. We, therefore, need a forestry permit to
continue the work.
Funding Of Karebbe
12. Does PT Inco have plans to undertake additional public
financing in the form of debt or equity?
A PT Inco is alert for financing alternatives which may become available
to it to increase its financial flexibility. Since the beginning of
its commercial production in the 1970s, it has had a debt component
in its financial structure and so ideally would like to retain long-term
debt as part of its capital structure.
The Company also believes that additional equity financing would
be difficult to undertake in the current environment.
Military Payments & Political Issues
13. Does PT Inco have a special relationship with the police
and military?
A. PT Inco is one of companies which assigned by the Government of
Indonesia as a National Vital Object. National Vital Objects are special
facilities including areas, locations, buildings and business on which
many people depend for their livelihood. These objects are important
to the nation and provide a strategic source of income, which is potentially
vulnerable and may destabilise the economy, politics and security
if a disruption occurs.
For the past few years, there have been some social (religious) conflicts
in the surrounding areas of PT Inco, such as Poso, Palu, Morowali,
Tentena and also some fake terrorist threats to PT Inco. Although
these districts are quite distant from PT Inco facilities, the government
of Indonesia anticipates that by assigning PT Inco as a vital object,
there will be no disruption in the operation of PT Inco.
Polri (the Police of the Republic of Indonesia) is the state apparatus
in law enforcement, protector, guardian and servant of the people
and as the enforcer of law and order in the society. Therefore, according
to the National Vital Object regulation, the local police office (in
this case South Sulawesi Provincial Office) is required to deploy
some police personnel and working together with PT Inco internal security
to safeguard PT Inco operations.
Previously according to the now defunct Armed Forces law, Polri was
a part of Armed Forces and the separation process was completed on
2002. At that time the military performed both security and defence
roles. However, the transitional process in implementing the regulation
on National Vital Object at the local level was observed until 2004
in which the police still closely influenced by the Armed Forces to
work together in performing security affairs. The regulation was renewed
on 2004 and the bulk of the tasks were assigned to the police, while
the military roles in defence were augmented with limited security-related
roles in intelligence and anti-terror matters in conjunction with
the police.
In the case of security supports for PT Inco, the military handed
over the tasks to the police in late 2004. However, the military still
retain the intelligence as well as territorial unit to support the
police in security affairs. PT Inco inevitably works closely with
the police in security, and under the auspices of the police work
with a small team of intelligence and territorial military to safeguards
the surrounding districts of PT Inco areas.
14. How many police and military personnel deployed in
PT Inco?
A According to the National Vital Objects regulations, specific police
personnel with specific capability are tasked to protect significant
facilities of a national vital object. Therefore, based on the agreement
between local police office and PT Inco internal security, some police
personnel are assigned to directly and indirectly protect the facilities,
such as mining and production areas, explosive warehouses, hydroelectric
power generation facilities, port facilities, Sorowako Airfield, town
areas which according to the Contract of Work is 218,000 hectare spreading
in South, Central and South East Sulawesi.
To perform all above duties, there are currently about 40 police
personnel from various units, such as perintis (general duties police),
traffic police, and criminal investigators. While some supportive
function, particularly intelligence, were conducted by about 10 military
officers.
15. Does PT Inco also make payment for security services
rendered by the police?
A For the service rendered by the police personnel deployed, PT Inco
provides allowance and facilities to cover their daily meals, accommodations,
transportations and communications. The allowance and facilities are
provided based on the actual service rendered according to the National
Vital Object regulation. Thus, there is no payment to the police personnel
who are not performing the duties to secure the vital objects. In
other words, there is no allowance and facilities provided for high
rank police officers who are not performing the on-site security duties.
The same holds true for the military performing duties assigned for
PT Inco.
16. Does PT Inco use the police to forcefully press demonstrations
against PT Inco?
A There is one rareness of the relationship between PT Inco and its
surrounding communities, which hardly found in other mining companies,
that is its local and non-local employees and local communities live
side by side as neighbours. Also worth mentioning is that there is
no physical boundaries between employee housing and PT Inco support
facilities with its surrounding communities.
PT Inco seriously maintains this feature and does not want to destroy
its healthy relationship with local communities by forcefully press
demonstrations against PT Inco. PT Inco is committed to applying and
adopting the Voluntary Principle of Security and Human Rights which
is sponsored by the Governments of the United States and the United
Kingdom, companies in the extractive and energy sectors, and non-governmental
organizations, all with an interest in human rights and corporate
social responsibility, in the security arrangement of companies in
the extractive and energy sectors.
This principle recognises the importance of the promotion and protection
of human rights in maintaining the safety and security of companies
in the extractive and energy sectors. Mindful of the principle, PT
Inco ensures that respect for human rights and fundamental freedoms
are upheld by its internal security and also in the security arrangement
with the police. PT Inco trains its internal security this principle
and consistently measures the practice of its security works with
the principle.
Based on the experiences, neither PT Inco security nor the police
assigned by the national vital object regulation committed any forceful
action against demonstrations in the PT Inco premises.
17. How is the security arrangement between PT Inco internal
security and the police?
A There are two kinds of security arrangement of PT Inco. The first
one is PT Inco internal security (satuan pengaman) with the status
of PT Inco’s employee and comprises 133 persons and work according
to PT Inco security regulations and Voluntary Principle of Security
and Human Rights.
PT Inco internal security and other internal security in the country
work under guidance of Directorate Samapta of the provincial police
office and get regular training from the South Sulawesi provincial
police office and Department of Security Services of PT Inco on the
subjects of security and human rights.
The internal security of PT Inco and external security (the police)
are working hand-in-hand to protect Indonesia’ vital object
in Sorowako, that is PT Inco and its employees.
Currently, PT Inco together with the police is in process of preparing
a formal MOU to institutionalize collaboration in security affairs.
This will include efforts to promote community participation in security
under ‘community policing’ program.
18. Is it true that the Company and the Suharto government
illegally agreed to the Company’s Contract of Work through KKN
and that the Contract of Work should therefore be re-opened to provide
more benefits to the people of Sorowako?
A Our Contract of Work was signed in 1968 in compliance with Law
no. 1 of 1967 regarding foreign investment and the Mining Law.
Beginning in 1993, it took us nearly 3 years to get the 1968 COW
amended in 1996 and extended to 2025 given the approvals and parliamentary
scrutiny which it received. Our COW is a public document, and we invite
anyone to look at it to see what we have undertaken to provide benefits
to the Indonesian people. We think they speak for themselves in terms
of what we are doing for Sulawesi and for Indonesia.
PT Inco is a fully transparent public company which must operate
under the full disclosure rules applicable to all public companies
in Indonesia. In addition, the Company has fully and satisfactorily
responded to the many questions that have been addressed to it about
its performance and compliance with law by members of the DPR in Jakarta
and members of the provincial DPRs in which the Company operates.
Again these are matters of public record to which we invite the attention
of all those who are interested.
Cow, Royalties, and Governance
19. What is PT Inco’s obligation to pay royalties
on overburden produced in its contract area?
A Under its Contract of Work, PT Inco is required to pay royalties
on industrial minerals such as stone, sand, gravel, lime and gypsum
to the extent it makes use of any of such minerals in its operations
or sells them to third parties. Materials removed strictly as overburden
are not subject to royalty.
20. Is PT Inco subject to shut down in the event of tax
or other disputes between it and the central or regional governments?
A PT Inco’s amended and extended Contract of Work sets forth
all of the respective rights and obligations of the Government of
Indonesia and of the Company and the dispute resolution mechanisms
of the Contract of Work are to govern exclusively in the event of
any disagreement between the Company and the Government of Indonesia.
Only after the exhaustion of all of the contractual remedies of the
Government would PT Inco be subject to shut down and then only after
appropriate notice from the Government and after a determination pursuant
to the dispute resolution procedures of the COW that PT Inco was in
default of its obligations to the Government of Indonesia.
21. Q: What is PT Inco doing to promote corporate transparency?
A: PT Inco operates in accordance with guidelines on business conduct
established by its parent, Inco Limited. PT Inco employees are required
annually to certify their compliance with these guidelines. In addition,
the Company, in full compliance with the requirements of the Jakarta
Stock Exchange, has established an audit committee to monitor the
Company’s compliance with applicable standards governing financial
reporting and other matters. The Company has also complied with the
rules of the Jakarta Stock Exchange requiring that 30% of the Board
of Commissioners be composed of independent Commissioners. While not
required to do so, the Company has also established an advisory committee
composed of distinguished Indonesians to advise it on all aspects
of its policies in Indonesia. PT Inco has also complied with JSX regulations
with regards to Corporate Secretary. Most recently, Board of Commissioners
has approved on the establishment of sub-committee on Corporate Governance,
Nomination and Remunerations. The responsibility of which includes
monitoring development in good corporate governance practice and making
recommendation to the Board of Commissioners.
22. What are the current arrangements between PT Inco and
PT Antam with regard to the development of Pomalaa?
A On February 1, 2003, PT Inco and PT Antam entered into a Cooperative
Resources Agreement (CRA) concerning their joint development of the
Company’s ore resources in Pomalaa in Southeast Sulawesi.
Under the Agreement, PT Antam will purchase ore mined from portions
of PT Inco’s contract area in Pomalaa East as feed for PT Antam’s
ferro nickel production facilities in Pomalaa. PT Inco anticipates
that its participation with PT Antam in the joint development of the
Pomalaa resources will result in (i) the near-term utilization by
PT Antam of the nickel resources of Pomalaa; (ii) revenues to PT Inco
arising out of those arrangements in the form of compensation from
PT Antam; and (iii) benefits to the Government of Indonesia, the Province
of Southeast Sulawesi and Kolaka Regency in the form of royalties
paid by PT Inco and in the form of the hiring of local residents as
contractors to PT Inco. We have started the delivery of ore to PT
Antam in July 2005 as well as payments of Royalties to the Government
of Indonesia.
In connection with these arrangements, the Government of Indonesia
has indicated that the Company’s obligation to construct a plant
in Pomalaa will be satisfied until the later of December 31, 2008
or the termination of the Cooperative Resources Agreement with PT
Antam following which the Company will be obligated to report to the
Government on the economic and technical feasibility of such a plant.
The Government also indicated that the Company’s obligation
to build a plant in Bahodopi by about 2010, subject to economic and
technical feasibility, remained unchanged.
23. What are PT Inco’s regional development undertakings
in Southeast Sulawesi and Central Sulawesi?
A The COW requires PT Inco to undertake a “staged regional
development program” in Southeast Sulawesi and Central Sulawesi
“in anticipation of” the development of the ore bodies
in those Provinces. PT Inco has committed a total of $3 million for
each province for community development, a portion of which has already
been spent in each. Actual expenditures over the next few years for
community development will dependent upon the Company’s financial
position and the amount of the community development budget worked
out for each province.
24. What is the deadline for PT Inco to start and to complete
its regional development undertakings in Southeast Sulawesi and Central
Sulawesi?
A There is no required starting date by which these projects must
commence. The COW merely says that “after the Effective Date
of the COW [i.e., December 29, 1995]”, the Company would undertake
the projects.
As to a completion date, the undertakings speak of the development
of the projects “in connection with” the anticipated development
of the Pomalaa and Bahodopi ore bodies.
25. What happens if the Company determines that it is not
economically or technically feasible for it to develop Pomalaa and/or
Bahodopi. Do we lose those resources?
A Under PT Inco’s COW, if the Government, after notice to PT
Inco and an opportunity for PT Inco to cure, says PT Inco is in default
of its undertaking to construct plants at Pomalaa and Bahodopi, the
Government’s sole remedy is the right to close the mining areas
concerned and to require the Company to relinquish them. The COW contains
detailed provisions governing PT Inco’s right to substitute
different undertakings to satisfy its development obligations.
26. What is PT Inco’s COW undertaking to consider
the production of more refined nickel or other higher-value nickel
products?
A Under the 1996 COW, PT Inco is required to periodically report
to the Government on the possibilities for the production of more
refined nickel or other value-added products.
The Government of Indonesia has indicated that PT Inco’s arrangements
with PT Antam to develop the Pomalaa East orebody to support PT Antam’s
ferro nickel operations satisfy this COW undertaking.
27. Does PT Inco have further expansion plans?
A The Company’s most recent expansion was completed in September
of 1999 at a cost of US$633 million. That expansion increased its
production capacity by 50% to 150 million pounds of nickel in matte
per annum. The Company plans to further increase its production capacity
to 200 million pounds by 2009.
28. There is a strong demand from public to revise CoW
of Freeport, what is PTI stand to this kind of demand?
A CoW is a binding agreement between Government of Republic of Indonesia
and Company. Therefore, all parties involved must honour the sanctity
of the agreement. It also requires both parties to agree if we want
to make any change in the contract. Currently, investors still see
CoW as a key factor to assure their investment or attract more investment
(foreign direct investment –FDI) especially in mining sector.
29. Newmont are willing to pay compensation fund amount
USD30 million for environment settlement in Buyat bay as out of court
deal. Does PT Inco willing to do the same in that respect for the
dust pollution?
A Every mining company have their specific environment condition,
we can’t always give the same answer for different condition.
In regards of dust handling, in year 2005 we have successfully installed
a bag house system in Electric Furnace #3 with the cost of approximated
USD12 million and as a result, our dust emission from the stack of
Electric Furnace #3 is now well under government limit. This year,
we plan to install another one in Electric Furnace #4 and the rest
of the electric furnaces in coming years. This commitment to spend
enormous investment in the bag house system is reflecting PT Inco
commitment to environment stewardship.
Besides dust emission handling, PT Inco also have other environment
programs such as revegetation. We currently maintain an open area
not more than 1,000 hectares and keep revegetating the post mine area
incorporation with Bogor Agriculture Institute/IPB, University of
Hasanuddin and other reliable and competence institutions. We also
have a reclamation guarantee in the form of accounting reserve to
ensure we do the revegetation properly.
30. What have been done and will be done to avoid situation
like Freeport and Newmont happening to PT Inco ?
A One of our key strategies is to keep maintaining good relations
with all our local stakeholders such as government, community, NGO
and media. The empowerment of local community based on principle of
bottom up planning, community projects are collected, selected and
prioritized by community themselves to suit the need of the community
in the specific area. The process is started from sub village, village,
and district.
We also focus our effort in maintaining communication and network
with stakeholders including local NGO, media to keep them update with
current information and situation
31. Why there is no one from Luwu Timur Become PT Inco’s
Commissioner?
A Currently our Commissioners are come from Sulawesi (i.e. Rumengan
Musu – Vice Commissioner and Achmad Amiruddin – Commissioner).
They become our Commissioner because of their integrity and broad
knowledge regarding company and community matters. We also support
by several advisors with their specific knowledge regarding Sulawesi
in general and our project area in particular (Patana Maloni Tosalili
and Fachrudin).
32. What do you think about raising Community Development
budget?
A For us it is not the total amount that is important, but how we
manage it. We try to facilitate the needs of community in our surrounding
area in corporation with government. PT Inco support government programs
in develop communities surrounding area.
33. Currently Community Development PT Inco are centralized
to Regencies surrounding Sorowako, why is that?
A Main goal of Community Development program is for community surrounding
project area. Currently PT Inco project in Sorowako is surrounding
by three Regencies (Nuha, Towuti and Malili). For regency outside
our project area, PT Inco support government as leader in the development.
34. Don’t PT Inco feel responsible to former Regency
(Luwu Utara) after expanded become Luwu Timur?
A The policy for expanding Regency is government authority, it stated
in law and regulations. PT Inco try to compliance with all government
regulations. Especially for taxes, levy and royalty distribution,
it also stated in the government regulations.
