Government guarantees Freeport operation
JAKARTA, KOMPAS — The transfer of shares is expected to financially benefit the people of Indonesia and the entire country.
The government guarantees PT Freeport Indonesia\'s operations until 2041. This guarantee is part of the process of divesting Freeport’s shares by PT Indonesia Asahan Aluminium. Inalum must exchange a part of Freeport\'s shares at almost Rp 60 trillion (US$3.85 billion).
The payment of the $3.85 billion share divestment to Freeport McMoran Inc (FCX), the holding company of PT Freeport Indonesia, took place in Jakarta on Friday (21/12/2018).
Under the divestment, Indonesia\'s share ownership, which is represented by PT Indonesia Asahan Aluminium (Inalum), rises from 9.36 percent to 51.23 percent. Of that amount, the Papua administration and the Mimika regency administration have a 10 percent stake. Therefore, FCX holds the remaining 48.77 percent stake in Freeport Indonesia.
Payment of the share divestment at the same time marks the change in the status of Freeport\'s operation from a contract of work (CoW) to a special mining business permit (IUPK). The issuance of the IUPK by the Energy and Mineral Resources Minister at the same time guarantees the extension of Freeport\'s operations until 2041 as well as stable fiscal and regulatory guarantees. Under the CoW, Freeport\'s operation in Mimika expires in 2021 and can be extended twice each by 10 years.
"In the IUPK, it is stated that since the issuance of the IUPK, the CoW is declared no longer valid. The year 2021 is the time spent for the remainder of the contract, then immediately extended until 2031. The extension can be submitted five years before the permit expires," the director general of mineral and coal of the Energy and Mineral Resources Ministry, Bambang Gatot Ariyono, said at a press conference at the ministry.
New structure
PT Inalum President Director Budi Gunadi Sadikin, who was present at the press conference, announced the structure at PT Freeport Indonesia. Tony Wenas, who was formerly executive vice president of PT Freeport Indonesia, was appointed managing director. FCX president director Richard Adkerson serves as chief commissioner and former chairman of the Upstream Oil and Gas Regulatory Special Task Force (SKK Migas) Amien Sunaryadi was appointed deputy chief commissioner.
Richard acknowledged that the process of divesting Freeport shares took a long time and was complicated. However, he said, the most important thing was that he had secured investment in the form of extension of operation until 2041, fiscal stability and regulation. The guarantee provided by the government is expected to have a positive impact on Freeport\'s operation in Indonesia.
"As the operation is now carried out jointly with the government of Indonesia through Inalum, Indonesia will get greater financial benefits [under the IUPK scheme] than when it still had the status as a contract of work," said Richard.
With regard to the construction of a smelter, which is part of the divestment agreement, said Richard, Freeport remains committed to completing its construction for the next five years. In the new smelter, Inalum will get the export right of copper concentrate purified in the new smelter. Freeport plans an investment of $2.3 billion for the construction of the smelter.
Benefits for Indonesia
The divestment of shares of IUPK holders is regulated in Government Regulation No 1/2017 on the implementation of mineral and coal mining business activities. In the regulation, foreign mining companies have the obligation to release shares of at least 51 percent to Indonesian participants since production in the 10th year. Freeport operations in Papua, according to its contract of work, will expire in 2021.
President Joko “Jokowi” Widodo said at the State Palace in Jakarta that the transfer of Freeport shares to Inalum was a historic moment. The majority share ownership will be utilized for the prosperity of the people as great as possible.
"Later, tax or non-tax revenues, royalties, of course, will be bigger and better. I think this is what we\'ve been waiting for," said the President.
The President added that matters related to environmental problems and the smelter had been completed and got its agreement. That means everything is complete and the work will continue.
Finance Minister Sri Mulyani Indrawati said that greater state revenue in the divestment agreement refers to Law No 4/2009 on mineral and coal mining. The sources of revenue include income tax, value-added mining tax, water and land tax, and royalties. The percentage of each component is fixed to provide certainty of investment.
"This gives certainty to the state to obtain higher income and Freeport has the certainty of obligations that must be paid to us," said Sri Mulyani.
Freeport, which began production in 1973, operates in the remote mountains of Timika, Mimika regency, Papua. Freeport\'s production operations area is 10,000 hectares with a total supporting area reaching 202,950 ha. The Freeport mine produces copper, gold and silver minerals.
Throughout 2017, the company produced 140,445 tons of ore per day. Of this amount, there was a copper content of 1.01 percent per ton, gold of 1.15 grams per ton, and silver of 4.32 grams per ton. Freeport once produced up to 238,000 tons of ore per day in 2009. In 2017, taxes, royalties, dividends and other fees paid by Freeport reached $756 million. ( APO/ KRN/ HAR/ NTA/ INA)