Talks with Freeport almost complete

JAKARTA. The contract renegotiation between the government and PT Freeport Indonesia, a subsidiary of US-based Freeport McMoRan Copper & Gold, is nearing completion, as the mining company has agreed in principle to six sensitive issues for the government.

Coordinating Economic Minister Chairul Tanjung said Freeport Indonesia had agreed its mining contract would comply with the 2009 Mining Law and Government Regulation No. 9/ 2012 regarding royalties.

“We will finish this by signing an agreement as soon as possible. However, first of all, we will consult with a meeting of the Cabinet,” Chairul said on Monday. The meeting has not been scheduled yet.

The government is working to renegotiate a number of mining contracts in the country in an attempt to reap greater benefits from its own natural resources.

The renegotiation, mandated under the 2009 Mining Law, covers six main issues: adjustment in royalty amounts, size of mining areas, divestment, domestic processing and refineries, continuance of mining operations and sourcing goods and services locally.

The renegotiation with Freeport Indonesia should have been completed one year after the law was passed, but disagreements have protracted the process.

The agreement between the government and Freeport Indonesia will be sealed in a memorandum of understanding (MoU) while a definitive contract amendment is now being drafted, according to the director general of mineral and coal at the Energy and Mineral Resources Ministry, R. Sukhyar.

The contract amendment is expected to be signed before the new president takes office, he said.

According to Sukhyar, Freeport has agreed to increase the government’s royalty on the copper it produces to 4 percent and for gold to 3.75 percent, from 1 percent previously.

Freeport McMoRan also agreed to divest 30 percent of its ownership in Freeport Indonesia.

The mining company agreed to reduce the size of its mines to 10,000 hectares of exploitation area and 112,000 ha for supporting area. Under the existing contract, the total mining area is 212,000 ha. The company also agreed to build a smelter and use local goods and services.

Regarding the continuation of mining operations, the government has said a company could only apply to extend its contract two years before the existing one expired, which is in 2019 in Freeport Indonesia’s case. Therefore, the current outgoing government could not give assurances to the company that it could continue to operate in the country after 2021.

Meanwhile, Law and Human Rights Minister Amir Syamsuddin said it would be no problem for the government to have an MoU with PT Freeport Indonesia on smelter development in the country.

“There will be no problem as long as the agreement would not contradict existing laws,” Amir told The Jakarta Post on Monday.

International law expert Hikmahanto Juwana, however, said the expected MoU between the government and Freeport Indonesia would only be morally binding.

“As I understand it, the MoU covers important points but it is not legally binding. After it is signed, it will be translated into a contract amendment. The problem is whether the new government wants to be tied to this or not,” Hikmahanto said. (Raras Cahyafitri)