Freeport says contract revision unlikely: Report
Monday, February 13 2006 - 01:04 AM WIB
The contract-of-work governing operations at Freeport's massive Grasberg mine in remote Papua province doesn't allow the Indonesian government to unilaterally adjust the profit-sharing agreement, said a company statement issued late Friday (Saturday in Jakarta).
"The terms of our contract of work can only be modified by an agreement of both parties or as expressly permitted by the contract-of-work," the statement said.
"This contract has never been amended (so) we are confident that, after reviewing this matter, the government will not make such a request (to revise the profit-sharing deal)."
The statement said that in 1991, Freeport-McMoRan signed a 30-year contract with the Indonesian government that requires the company to pay corporate income taxes and withholding taxes on dividends of 35.0% and 10.0% respectively, along with unspecified royalties on revenues.
Indonesia's government reaped $1.2 billion in taxes, royalties and dividends in 2005, the statement said.
Soaring mineral prices on the global market justify a revision of the government's profit-sharing agreement Freeport-McMoRan Copper & Gold Inc., Indonesia's Vice President Jusuf Kalla said Friday.
Copper and gold prices on the world market hit records this month as fund managers entered the market en masse as a result of strong demand expectations from the Asian economic powerhouses of China and India.
Copper reached an all-time intraday high of $5,110 per metric on Feb. 7 while gold reached an 18-year high of $575 an ounce on Feb. 2. on the London Metals Exchange.
The Grasberg mine has produced 16.1 billion pounds of copper and 23.3 million ounces of gold net since it began production in 1988. The mine's estimated reserves of more than 40 billion pounds of copper and 46 million ounces of gold give it "decades" of future production, the Freeport-McMoRan 2004 annual report said.
Kalla's comments are likely to reinforce foreign investors' worst fears about contract sanctity and the predictability of Indonesia's legal and regulatory environment.
Indonesia recorded a 20.6% on-year rise in approved foreign direct investment to $11.69 billion in the first eleven months of 2005, but analysts say concern over the country's judicial unpredictability remains a major deterrent to new investment inflows.
Foreign investors are already aghast at a wrangle between Indonesia's state-owned Petroleum firm Pertamina and U.S. oil giant Exxon Mobil Corp. that's preventing the signing of a joint-operations contract for the massive Cepu oil block in East Java province.
The two companies are deadlocked over Pertamina's demand that it be Cepu's sole operator for the first five years of the block's 30-year contract. Exxon Mobil says the demand violates a memorandum of understanding the two companies signed in June 2005.
Kalla's comments coincide with heightening official scrutiny of alleged illegal payments by Freeport-McMoRan to military officers on Papua.
Freeport-McMoRan said late Wednesday that it will fully cooperate with government investigations into its Grasberg operations in Papua province.
Indonesia's Minister of Energy and Mineral Resources, Purnomo Yusgiantoro, said Wednesday that the government will "very soon" form a special interdepartmental investigative team to probe complaints about Freeport-McMoRan's Papua operations.
That probe is part of the widening fallout from a December New York Times report that Freeport-McMoRan allegedly made payments of nearly $20 million to military and police officials posted around Grasberg from 1998 to 2004.
Similar allegations were made by London-based environmental watchdog Global Witness in a July 2005 report called "Paying for Protection."
The allegations prompted Indonesia's defense minister last month to call for a probe of Freeport-McMoRan's military payments and for the issuance of specific guidelines for private firms that need the Indonesian military to provide security in remote areas.
In January, the allegations prompted the comptroller of New York City, representing shareholders of city pension funds, to ask both the U.S. Justice Department and the Securities and Exchange Commission to probe the legality of Freeport's financial support for security forces in Papua.
Freeport-McMoRan has said it gave "financial support" to Indonesian security officials in Papua for items including infrastructure and logistics, according to a letter signed by the company's Chief Executive Richard Adkerson, posted on the company Web site Jan. ll.
The company's vice president of communications, William L. Collier III, last week declined a Dow Jones Newswires request for clarification on the payments, saying he wouldn't comment beyond the company's public disclosure. (*)