Wanted: a Win-Win Agreement with Freeport

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  • Grassberg Freeport-McMoran Cooper & Gold Inc. mine in Papua. REUTERS/Stringer

    Grassberg Freeport-McMoran Cooper & Gold Inc. mine in Papua. REUTERS/Stringer

    TEMPO.CO, Jakarta - The government and Freeport Indonesia must reach an agreement soon on the alternation from a contract of work into a special mining business permit (IUPK). Negotiations do not have to be so protracted, let alone end up at the international arbitration court as Freeport has threatened.

    The never-ending talks will cost both sides. There is still room for negotiation because Government Regulation No. 1/2017 covers this type of status change. The government and Freeport must be flexible, and not try for an all-out victory. They must both seek a cooperative formula that benefits both, but that is in line with the rules. This is needed not only to ensure that both benefit, but also to avoid legal problems at a later stage.

    In accordance with the new regulation, a mining company holding a work contract must change it into an IUPK in order to export concentrate unrefined minerals. A company holding an IUPK is also obliged to divest 51 percent of its shares to Indonesia, in stages. Because it is only a permit, the government can revoke it at any time. This is different from a work contract, which cannot be cancelled until the end of the contract period.

    Freeport has not directly agreed with this change of status. The US company has proposed a condition, namely that there is an investment stability agreement with the same standing for fiscal and legal certainty as a work contract. According to Freeport, this is very important for their long-term investment plan.

    They also do not want to change the taxation principles in line with the regulation. In a work contract, the amount of tax and royalties is fixed until the end of the contract known as a nail-down, while under an IUPK, they would adhere to prevailing regulations. The government insists that Freeport comply with the regulation. Agreement could not be reached. As a result, since January 12, Freeport has not been able to export concentrate. Freeport subsequently laid off a number of employees and reduced their production of concentrate. But in the middle of the negotiations, last Friday the government reissued a permit to export concentrate for another year.

    Renegotiation of an agreement is normal in business. It usually takes place if one or both parties discover something unfair in the existing agreement. And there are usually new offers to ensure the continuation of the cooperation. For example, in 1991 the New Order government asked for improvements to the first work contract that had been signed in 1967 despite the fact the 30-year agreement had not ended.

    In order to reach a solution beneficial to both sides, Freeport should not use double standards in discharging its obligations. It should not choose a different regulation if it feels that one provision in the work contract is not to its advantage. Conversely, if there is a new rule seen as disadvantageous, Freeport should not return to the old work contract.

    Whatever agreement is reached in the negotiations, the government's main consideration should be the principle contained in the Constitution, of bringing about the maximum benefit for the people. If the negotiations reach a dead end, neither the government including the local administration and the people of Papua nor Freeport will enjoy any rewards. Therefore, negotiations with the US mining giant must end with a mutually beneficial agreement. (*)

    Read the full story in this week's edition of Tempo English Magazine