TEMPO.CO, Jakarta - The renegotiations over the government's contract of work with Freeport are almost concluded, and we should be relieved. Although it has not yet been signed, the American copper and gold mining giant says it is prepared to comply with the provisions of Mineral and Coal Law No. 4/2009.
After almost two years of tough negotiations, this change of position is good news. The subsidiary of Freeport McMoran Copper and Gold Inc had been insisting that their contract, which was signed by the New Order government in 1971 and extended in 1991, must remain unaltered.
Freeport's flexibility is an inseparable part of its long-term business plan. As explained by Freeport Indonesia President Director, Rozik B. Soetjipto, Freeport plans to continue its mining underground, given that its copper and gold ore from the open-pit mine in the Grasberg area is almost exhausted. Freeport has set aside US$17 billion for this. Without an extension of at least 20 years, an investment of this scale would not be profitable.
This is why Freeport is interested in continuing its operations in Papua after its contract of work ends in 2021. And this is where the government must play its cards carefully. So far, the contract negotiations have never been linked with any extension. These renegotiations are a consequence of the Mineral and Coal Law that was backed up by Government Regulation No. 24/2012. Contract extensions are usually discussed separately.
As with Inalum and the Mahakam Block, the government has the option not to extend the contract and to ask a state-owned company to take over the concession. The simultaneous renegotiations and contract extension discussions open the door to bargaining. For example, Freeport's concession to comply with the provisions of the Mineral and Coal Law would have been more difficult to obtain if the government had said it would not extend the contract.
Freeport has given positive responses to four of the six negotiating points. The company has said it will reduce the area it controls from 200,000 hectares to a little more than 100,000 hectares it will build a smelter to refine its ore before export, to raise royalties as well to maximize the use of local goods and services. But Freeport is still holding out on two points: the change in the type of contract and the divestment of shares. These are the two most crucial points.
The Mineral and Coal Law no longer recognizes contracts of work that place foreign companies on an equal standing with the government. The government is now in a stronger position. Private companies must apply for a mining license before it starts operating. The divestment issue is no less important. In accordance with the regulations, 10 years after the license is granted, Freeport is required to divest 51 percent of its shares. So far only 9.36 percent of Freeport shares are held by the government.
There are signs that the government will relent on this point. The Directorate-General of Minerals and Coal has admitted that the government will only ask for a 30 percent divestment of shares because if it were to become the majority shareholder, Freeport could cancel investments worth billions of dollars. The nation must benefit from the outcome of the negotiations, but these benefits will not last if the private company processing the natural resources incurs losses. If all these principles are followed, the renegotiations of the Freeport contract should be completed soon. The people are now awaiting Freeport's next phase in Indonesia. (*)
