Uncertainty shrouds talks on Freeport

http://www.thejakartapost.com/news/2015/02/02/uncertainty-shrouds-talks-freeport.html

Uncertainty shrouds talks  on Freeport

Raras Cahyafitri, The Jakarta Post, Jakarta | Business | Mon, February 02 2015, 10:21 AM 

The government has not decided on the future of PT Freeport Indonesia’s operations, although it understands investors need certainty. 

In July last year, the government and Freeport signed a memorandum of understanding (MoU) in which both sides agreed to complete the draft of an amendment to the miner’s contract of work (CoW) within six months, or January 2015.

However, they failed to meet the January deadline and eventually agreed to extend it another six months.

Despite the deadline extension, whether Freeport will continue operations in the country remains unclear. 

Freeport Indonesia, a subsidiary of US-based Freeport McMoran Inc., will see its contract expire in 2021 — around six years from now. The company has been trying to secure a contract extension so that it can ensure the payback period for its massive investment in the development of underground mining and a mandatory copper smelter in Indonesia.

However, under existing law, any request for a contract extension can only be made two years before expiry, which in the case of Freeport will be in 2019.

“We have to change views, particularly concerning worries over whether Freeport Indonesia closes for operation. We have no fear. Even the President and Vice President have stronger views; if there is no deal, let them go. That’s a political position,” Energy and Mineral Resources Minister Sudirman Said said at a hearing with the House of Representatives recently.

“Reality in the field, however, shows that Freeport Indonesia is a big institution and contributes both directly and indirectly to local income. There are also thousands workers, making this a tough issue,” he added.

Sudirman emphasized that through its MoU with Freeport, the government was seeking more benefits from the operation of the giant miner in the country, particularly contribution to industrial development in the Papua area, where company’s main operations is located. 

Freeport Indonesia, which has been operating the world’s largest gold mine Grasberg since the early 1970s, is seeking a maximum operation extension of 20 years until 2041.

Investment Coordinating Board (BKPM) head Franky Sibarani suggested the government not extend Freeport Indonesia’s operations.

“We should thank Freeport Indonesia for developing the Grasberg mine. However, time has passed a long and operations should have been handed over,” Franky, who was inaugurated as BKPM head last November, said last Friday.

He argued the country has the means to develop the mine, particularly through state-owned diversified miner PT Aneka Tambang (Antam), which also operates gold mines in the country.

BKPM is involved in the renegotiations of a number of mineral and coal CoWs in the country.

Considering that a number of mining firms have been operating in the country for years and aim to make use more of natural resources, the government, through the 2009 Mining Law, aims to adjust a number of mineral and coal CoWs in the country, including the one involving Freeport Indonesia. The adjustment covers six main issues, namely royalty increases, reduction of mining-area size, continuity of operations under a mining license instead of a contract, obligation to give added value to mining products, divestment and the obligation to use local goods and services.

Last year, when the government forced Freeport Indonesia to principally agree on adjustments to its CoW despite future operations uncertainty, the primary MoU stated that the government would not unreasonably withhold or delay the continuation of its operations if the company met all of its commitments, including the establishment of a copper smelter in the country.

The Energy and Mineral Resources Ministry’s director general for mineral and coal, R. Sukhyar, said the primary MoU remained valid and became the basis for the extended MoU last January. 

Details of agreements will be followed up in the amendment to the CoW.