Government extends Freeport?s temporary export permit

Petromindo|Lucky

Minister of Energy and Mineral Resources Ignasius Jonan said the government has decided to extend the temporary IUPK special mining business license of gold and copper giant PT Freeport Indonesia (PTFI), which enables the company to export copper concentrates, until January 10, 2018 from the initial expiry date of October 10, 2017, Kontan reported on Tuesday.

The paper quoted Jonan as saying that the three-month extension was made because current negotiations between the company and the government are unlikely to be settled by October 10 as initially planned. The extension of the temporary IUPK will allow the company to continue export while negotiations are still in progress. ?We?ll only give a three-month extension (of the IUPK),? he said.

PTFI, a subsidiary of US-based Freeport McMoRan Inc, has been engaged in intensified negotiations with the government since April of this year to resolve various disputes following the introduction of new government regulations early this year. Under the new regulations, miners will be allowed to continue export of mineral concentrates for another five years under certain conditions including converting their mining permit status from contract of work (COW) to special mining business license (or IUPK) and develop domestic smelter. The foreign controlled company is also required to divest up to 51 percent shares to Indonesian investors.

While PTFI has initially agreed to converting its permit from COW to IUPK, it demanded the IUPK to have similar legal and fiscal terms including a nailed down tax system as those set out under the COW regime to help ensure stability of its investment. The company has also demanded for the government to extend its current contract, which is set to expire in 2021, until 2041.

The government has turned down the demand, saying that according to existing regulations, the tax system in the IUPK is based on prevailing regulations, which thus could change over time. The government has also said that the contract can only first be extended until 2031, and that a second extension of another 10-year may be given in the future, a condition the company said is creating uncertainty as it is set to invest billions of dollars in underground mine and smelter project.

The company and the government have also yet to agree on details of the mandatory divestment program including on the price of the share, the method of divestment, and the timing.

Amid the lingering disputes, the government then issued a temporary IUPK for PTFI to allow it to resume export of copper concentrates, pending conclusion of the negotiation process. The government initially expected the negotiations with PTFI could be concluded on October 10 of this year, but Jonan indicated recently that the target is likely to be missed. (*)