TEMPO.CO, Jakarta - Whatever the government's decision on Freeport Indonesia, the 1945 Constitution must be its main point of reference. The Constitution clearly states that the soil, water and natural resources of Indonesia must be managed by the state and must be exploited to the maximum for the benefit of the Indonesian people. The government is mandated to put this principle above all in its negotiations with the American company before its contract of work ends in 2021.
In line with the latest government regulation, negotiations on Freeport's contract extension must take place two years before its expiration date. By comparison, in the risky oil and gas sector, investors are given the opportunity to submit their contract extensions 10 years before their expiration date. So, we can understand if Freeport wants an earlier decision, given that the company plans to invest another US$18 billion, or more than Rp 240 trillion, over the next few years.
Renegotiations are normal whenever one or both parties find an unfair element in the previous contract. And it is not unusual if there are new issues that must be mutually-agreed upon, before the contract can be extended. In 1991, the New Order regime requested improvements to the Contract of Work I that was agreed on 1967, long before the end of the 30-year agreement.
The question now is whether Freeport is the best choice and whether it provides the most benefit for Indonesia. The minister of energy and mineral resources should consider this carefully before he submits his proposal to President Joko Widodo. The new formula must give the people and the regional government an opportunity to obtain the best possible benefit from the mining of the gold, copper, silver and other minerals from their own land.
The government must not weaken in the face of the immense capital involved. The current uncertain economic situation should not weaken its negotiating position. Yes, we need to open the door wide to investors and prevent those already in the country from leaving but foreign investors in Indonesia should only be welcomed with one condition: that their business benefits the people of this nation.
The government must use these accelerated negotiations as an opportunity to ensure that it obtains a larger contribution from Freeport's operations in Papua. The 1 percent royalty paid since 1967 is too little in proportion to the profits Freeport earns from mining in Papua. Many nations obtain royalties above 5 percent out of similar mining operations.
This is why the President or the energy minister must explain why they have only asked for around 3.5 percent in these negotiations. Additionally, why was the government too quick in agreeing to reduce Freeport's concession area from 213,000 hectares to 90,000 hectares, despite Law No. 4/2009 on Mineral and Coal Mining, limiting production areas to a maximum of 25,000 hectares? In the new agreement, there must be no special treatment or exceptions.
Every point negotiated must be backed by strong and rational arguments. The policy of divesting 30 percent of shares in 2019 must be monitored carefully to ensure that it is implemented without any vested interests or collusion. The obligation to build a smelter to process the mining products, as well as the requirement to acquire a bigger portion of domestic goods and services, should not be negotiable.
Indonesia has a much stronger bargaining position than it had when the Suharto regime renewed Freeport's contract of work in 1992. Jokowi has more ammunition and better weapons to back him up: for Freeport, 2.27 billion tons of ore reserves in its concession area is a gold mine. The government must stand firm because Freeport will fight hard to prevent its concessions from slipping out of its hands. (*)
Read the full story in this week's edition of Tempo English Magazine
