Government, Freeport reach agreement on two issues
Thursday, July 27 2017 - 03:05 AM WIB
The government and PT Freeport Indonesia have reached agreement on two of the four main issues which have been the focus of ongoing negotiations over the future operations of the gold and copper giant in Papua Province.
This was said by Secretary General of the Ministry of Energy and Mineral Resources Teguh Pamudji at a press conference held on Wednesday to provide update on the negotiation process, which started in early May and targeted to be concluded October 10.
Teguh, who is also the leader of the government negotiation team, said that PT Freeport, a subsidiary of US-based Freeport McMoRan Inc, has agreed to convert its mining contract status to special mining business license (IUPK) from Contract of Work (COW) as part of conditions for the company to be able to continue export of copper concentrates as stipulated under a new government regulation introduced earlier this year.
The IUPK will be valid until 2021 in line with expiry of the company?s current COW.
PT Freeport will be allowed to seek for an extension of the IUPK for another 10 years until 2031, which will be approved by the government if the company fulfills the requirements, Teguh said.
PT Freeport will also be given opportunity in the future seek for a second 10-year extension of the IUPK until 2041, which will be approved by the government once the company has fulfilled the required conditions.
Teguh, however, said the issue of the IUPK extension is still under negotiation as PT Freeport has insisted for the government to extend the IUPK until 2041, not 2031. The company make this request as it wants to ensure the return of its multi-billion dollar investment plan in Indonesia.
Teguh said that PT Freeport has agreed to the government?s demand for the company to build domestic copper smelter as part of conditions to continue export of copper concentrates. He said that the company has promised to complete the smelter by 2022. The government will audit the progress of the smelter project every six months, and that if the progress fails to reach the required target, the government may revoke the export permit.
Two other issues that are still under negotiation are regarding investment stability and mandatory divestment obligation, Teguh said.
PT Freeport has previously demanded that the IUPK have similar fiscal and legal terms as set out in the COW particularly a nailed down tax system, as opposed to the prevailing tax system, to help ensure stability of its investment. The company fears that the prevailing tax system under the IUPK will trigger uncertainty for the company?s finances as it opens possibility for the central and local governments to issue new taxes in the future that could not be anticipated. Teguh said that the company will hold talks with the Ministry of Finance regarding the fiscal issue, but the government has agreed to help ease such concern a new regulation will be issued, putting under all provisions on local taxes and retributions under one government regulation package.
Regarding the issue of divestment obligation, the government wants state-owned enterprises to acquire the more than 41 percent shares to be divested by PT Freeport all in one transaction. PT Freeport is required to divest 51 percent shares to Indonesian investors. The government currently owns more than 9.3 percent shares in the company. PT Freeport, however, requests for the divestment process to be made gradually, and some of it to be floated via the stock market.
Teguh said that PT Freeport will issue new shares to implement the mandatory divestment program. Valuation of the shares will be made by an independent appraisal company, to be jointly appointed by the government and the company, based on market value withouth taking into account the current reserves of PT Freeport?s mine in Papua. The company has previously insisted for the valuation to also include the reserves.
PT Freeport and the government have been engaged in ongoing negotiations following the introduction of a new government regulation and implementing ministerial regulations earlier this year which set conditions for miners to be able to continue export of mineral concentrates for another five years.
Minister of Energy and Mineral Resources Ignasius Jonan previously hoped that the negotiations could be completed sooner than the October deadline. Jonan met with Freeport?s top officials in Houston, the US, on Wednesday as part of his three-day US trip to meet a number of firms engaged in energy and mining sectors in Indonesia.
Editing by Reiner Simanjuntak