Government plans new regulation to facilitate negotiations with Freeport
Tuesday, August 8 2017 - 01:05 AM WIB
The government plans to issue a new regulation on so-called investment stability of mining firms to help facilitate ongoing negotiations with gold and copper giant PT Freeport Indonesia.
Secretary General of the Ministry of Energy and Mineral Resources Teguh Pamudji said on Monday that the new government regulation will among others contain provisions on central and local government taxes imposed on mining firms holding the IUPK special mining business license. As such, the new regulation will not only be applied on PT Freeport.
Teguh said that the ministry has received the concept of the new government regulation drafted by the Ministry of Finance. He added that his ministry is currently studying the draft, and if necessary it could also issue an implementing ministerial regulation. He did not provide further details about the new government regulation.
The government has been engaged in negotiations with PT Freeport, a subsidiary of US Freeport McMoRan Inc, since April to end disputes following the introduction of new government regulations earlier this year which among others require mineral mining firms to convert their contract status from mining contract of work (or COW) to IUPK as part of conditions for them to be allowed to continue export of mineral concentrates.
While PT Freeport has agreed to convert its COW into IUPK, the company demanded the IUPK to have similar fiscal and legal terms as those set out in COW including a nailed-down tax system to help ensure stability of its investment as it plans to spend more than US$17 billion in developing underground mine in Papua and copper smelter in East Java. The government, however, has turned down the request arguing that according to existing regulations, an IUPK does not acknowledge a nailed-down tax system, but a tax system based on prevailing and changeable regulations, seen by Freeport to create uncertainty in terms of future taxes as it can be unilaterally increased by both central and local government.
The investment stability issue is one of the thorniest issues in the current negotiations between the government and PT Freeport, targeted to be concluded in October of this year. Another tough issue is a requirement for PT Freeport to divest up to 51 percent of its shares to Indonesian investors, higher than the 2014 government regulation which allowed the company to divest only up to 30 percent stake as incentive for developing underground mine operation. PT Freeport has also demanded guarantee that its current contract, which is set to expire in 2021, to be extended until 2041.
Editing by Reiner Simanjuntak