Govt plays down concerns surrounding Freeport deal

JAKARTA. Officials have rebuffed concerns that an agreement reached by the current administration with the domestic arm of US giant Freeport-McMoRan Inc. last week had established the firm’s right to operate beyond 2021 and hamstrung the incoming government’s ability to negotiate new contract terms.

Coordinating Economic Minister Chairul Tanjung said the memorandum of understanding (MoU) between both parties still had to be translated into an amendment of the firm’s contract of work (CoW), a task left for president-elect Joko “Jokowi” Widodo’s administration.

“We did not extend [the contract]. It’s the future government’s job to extend it,” he said on Monday as quoted by kompas.com.

According to Chairul, in the existing agreement, Freeport’s contract is set to expire in 2021 and its permit can only be converted into a special mining license (IUPK) after it proposes a contract extension in 2019.

Energy and Mineral Resources Ministry director general for minerals and coal R. Sukhyar and Freeport Indonesia president director Rozik Soetjipto inked the deal last Friday, ahead of the weeklong Idul Fitri holiday.

One of the clauses in the MoU, according to Sukhyar, stipulates that “the government will not unreasonably withhold or delay the continuation of its operations” if Freeport fulfills its commitments, suggesting a guarantee of future mining rights for Freeport after the mining giant’s license terminates in 2021. 

Among the commitments outlined in the MoU are to store US$115 million in surety bonds to establish Freeport’s commitment to building a smelter and to raise royalties on the mining of copper 3.75 to 4 percent.

Under the MoU, the firm’s export tax would be reduced to 7.5 percent from the industry average of 20 to 25 percent in 2014 and 60 percent by 2016.

Indonesia’s top copper miner is expected to export 756,000 tons of copper concentrate in the second half of this year with an estimated value of $1.7 billion in line with an Energy and Mineral Resources Ministry’s recommendation to the Trade Ministry.

Trade Ministry director general for foreign trade Partogi Pangaribuan confirmed on Wednesday that his office had issued the export permit for Freeport the day after the MoU was signed.

“Freeport has been able to start exporting its copper concentrate since last Friday. Its export permit will last six months,” he said, adding that the license could be extended at a later date.

Separately, Industry Minister MS Hidayat said on Monday that the deal only guaranteed Freeport’s willingness to build a smelter and the government’s commitment to allowing the firm to resume outbound shipments of its copper concentrate and a lowering of its export tax. There had been no arrangement to lengthen its contract, which he said would be a “mistake” if it occurred right now. 

“The extension of its contract after 2021 [...] will be negotiated by the next government,” he said.

Vice president-elect Jusuf Kalla said he could not comment much on the issue as he had yet read the agreement. However, he said that talks to decide the contract’s future could only begin in 2019, two years before its expiration.

“Basically, we agree to extend the contract as long as it complies with our national interest,” he told the Post during an Idul Fitri celebration at his house. (Linda Yulisman)