Freeport announces framework for agreement with RI government
Wednesday, August 30 2017 - 01:12 AM WIB
Petromindo|Thomas
US-based Freeport McMoRan Inc said it has reached with the Indonesian government an understanding on a framework to support the long-term investment plans of its subsidiary PT Freeport Indonesia (PT-FI) in Papua Province.
The company said in a statement on Tuesday that this framework will require definitive documentation and Freeport?s board and partner approvals.
Under the framework, Freeport said PT-FI will convert its current Contract of Work (COW) to a special mining business license (IUPK), which will provide PT-FI with long-term operating rights through 2041.
?The government (of Indonesia) will provide certainty of fiscal and legal terms during the term of the IUPK,? Freeport said in the statement, providing an update to the months of negotiations with the government.
The company has been engaged in lengthy negotiations with the government following the introduction of new mining regulations, which among others require miners to convert their permit status from COW to IUPK as part of conditions for continuing export of mineral concentrates. While PT-FI has previously signaled its willingness to convert into IUPK, the company demanded the new license to have similar fiscal and legal terms as those set out under the COW including a nailed-down tax system (as opposed to a tax system based on prevailing law and regulations under the IUPK) to help ensure investment stability as it plans to spend over billions of dollars in underground mine and domestic smelter project. The company has also demanded for certainty for its current contract, which is set to expire in 2021, to be extended until 2041. The government initially rejected the demand.
The Freeport statement did not say whether the government has agreed to its demand for a nailed down tax system.
Minister of Energy and Mineral Resources Ignasius Jonan said at a press conference on Tuesday that the tax scheme and under technical issues will be later discussed at the next negotiation rounds. Minister of Finance Sri Mulyani said that the ministry is currently drafting a new government regulation on the tax scheme to help ensure certainty both for the company, the central and local governments.
The second item in the framework agreement is that PT-FI has agreed to develop the required domestic copper smelter within five years. The government has required miners to put in place concrete plan to develop domestic smelter as part of conditions to be able to obtain export permit.
Meanwhile, a source told Petromindo.com that PT-FI has quietly signed a MoU with state-owned port management firm PT Pelindo III and state-owned fertilizer firm PT Petrokimia Gresik to lease land near the port belonging to the two latter companies in East Java as a site for the planned copper smelter. PT-FI Spokesman Riza Pratama confirmed that the company will develop the copper smelter in East Java, but declined to provide further details.
Elsewhere, Freeport said it has also agreed to divest up to 51 percent of its ownership in PT-FI to Indonesian investors as required under the new government regulation. The government currently holds a 9.36 percent interest in PT-FI, which means that Freeport will have to divest another 41.64 percent.
The company, however, did not say the value of the shares to be divested and the timing, saying that the timing and process of divestment is being discussed with the government. ?The divestment will be structured so that Freeport will retain control over operations and governance of PT-FI,? the company said in the statement.
Jonan said that further talks will be held to decide the fair market value of the PT-FI shares. The government has previously estimated the 41.64 percent shares of PT-FI at US$2.46 billion, while PT-FI?s estimate was $6.6 billion, taking into account the reserves at the Grasberg mine in Papua. Jonan said that the share valuation must not include the Grasberg reserves. ?Why would they (Freeport) calculate something that it isn?t even theirs?? the minister said.
Richard C. Adkerson, President and Chief Executive Officer of Freeport, said: ?We are pleased to announce an agreed framework to support our ongoing operations and investment program in Papua. Reaching this understanding on the structure of a mutual agreement is significant and positive for all stakeholders. Important work remains on documenting this agreement and we are committed to completing the documentation as soon as possible during 2017.?
Editing by Reiner Simanjuntak