Government issues temporary IUPK for PT Freeport to resume export

By Bonha Ventura Sebayang

The Ministry of Energy and Mineral Resources has decided to issue a temporary special mining business license (IUPK) for gold and copper giant PT Freeport Indonesia to allow the company resumes export of copper concentrates.

Secretary General of the ministry Teguh Pamudji said late on Tuesday that the temporary IUPK is a short-term solution to help resolve dispute between the government and the company which has affected the latter?s mining operations in Papua and the local economy.

?With the temporary IUPK, PT Freeport can resume export by paying export duty,? said Teguh, who has been leading the government?s team in negotiations with PT Freeport, adding that the temporary IUPK is valid until October 10, 2017, by which time negotiations are expected to be concluded.

He explained that while PT Freeport operates under the temporary IUPK permit status, the government will still honor the company?s existing mining contract of work (COW), meaning that legal and fiscal terms set under the COW regime remain in place.

The government introduced in January of this year a new regulation (replacing a 2014 regulation which banned export of mineral concentrates including copper concentrates produced by miners such as PT Freeport starting January 11 of this year) allowing miners to continue export of the concentrates for another five years but under certain conditions including converting their mining permit status form COW into IUPK, commitment to develop domestic smelter, and pay export duty.

While PT Freeport has agreed to convert into IUPK, the company demanded the IUPK to contain similar fiscal and legal terms as set in the COW including a nailed-down tax system instead of tax system based on prevailing regulations, to help ensure its investment stability. The request has been turned down by the government, thus triggering dispute between the two. PT Freeport?s parent, US-based Freeport McMoRan Inc, has previously threatened to go to international arbitration if no mutual agreement can be reached within six months from February.

PT Freeport, which operates the giant Grasberg mine in Papua Province, has been forced to partially suspend production activities since February as the company could no longer export copper concentrates due to the lingering dispute with the government, causing contractors to lay off their workers.

Meanwhile, Director General of Mineral and Coal at the ministry Bambang Gatot Ariyono said that with the issuance of the temporary IUPK, PT Freeport can now resume export of copper concentrates with a volume in accordance with the export recommendation letter issued by the ministry in February. According to the letter, PT Freeport is given a quota to export 1.11 million tons of copper concentrates until February 18, 2018. PT Freeport will have to apply for export permit from the Ministry of Trade after obtaining the export recommendation letter.

Elsewhere, Teguh said that while negotiations over short-term issues have been settled with the agreement on the temporary IUPK, the government and PT Freeport are scheduled to start next week negotiations over long-term issues such as investment stability issue requested by the company, extension of operation, mandatory divestment and smelter development are expected to start next week.

He said that negotiations with PT Freeport are targeted to be completed by October 10, by which time the company can decide whether to maintain operation under the COW regime or agree to fully convert into IUPK. He said that if the company decides to maintain the COW, it would no longer be allowed to export copper concentrates as stipulated under Government Regulation No 1/2017.

Editing by Reiner Simanjuntak