Jakarta – The Indonesian Government stated that it had reached a final agreement with PT Freeport Indonesia in a meeting on Sunday, August 27, 2017. The meeting was attended by Minister of Energy and Mineral Resources Ignasius Jonan as Chairman of the Government Negotiation Team and Minister of Finance Sri Mulyani Indrawati, ranks of the Ministry of Energy and Mineral Resources and the Ministry of Finance, as well as representatives of the Ministry such as the Coordinating Ministry for the Economy, the Coordinating Ministry for Maritime Affairs, the Ministry of Law and Human Rights, the Ministry of Environment and Forests, the Ministry of State-Owned Enterprises, the State Secretariat, and the Investment Coordinating Board (BKPM). Freeport President and CEO McMoran Richard Adkerson and the board of directors of PT Freeport Indonesia attended Freeport with the agenda of finalizing an agreement on the settlement of disputes that occurred after the enactment of Government Regulation (PP) No.1 of 2017 concerning the Fourth Amendment to Government Regulation Number 23 of 2010 concerning the Implementation of Business Activities Mineral and Coal Mining.
In general, the Government and Freeport McMoran, in the press conference of the Minister of Energy and Mineral Resources on August 29, 2017, stated that they had reached an agreement in terms of changing the legal form of mining exploitation from a Contract of Work to a Special Mining License (IUPK). Divestment of PT Freeport Indonesia shares by 51% for Indonesian National ownership; Obligation to build a smelter no later than 2022; and stability of state revenues; and approval of an extension of the operating period up to a maximum of two periods of ten years until 2041, provided that PTFI agrees to clauses 1 to 4 in the previous point.
Responding to these developments, the Coordinator of Publish What You Pay (PWYP) Indonesia, Maryati Abdullah, stated that the agreement’s points still need further detail to provide better certainty for the management and national mining sovereignty. It is considering that the obligation to divest and build a smelter is not new. The obligations have been stated in the Contract of Work and approval before the Government granted the concentrate permit. These two obligations have been fulfilled as of 2017-these years. Unfortunately, the Government seems to pursue 51% divestment in the middle of a contract that is approaching its end per 2021.
Shouldn’t Freeport’s mineral reserves in Papua all belong to Indonesia by 2021? Meanwhile, the divestment effort at the beginning of 2016 was challenging to reach an agreement between the two parties due to the difference in interpreting the 10.64% divestment value between Freeport VS the Government (IDR 23.6 Trillion VS IDR 8.19 Trillion). Logically, isn’t this similar to ask Indonesia to finance a smelter’s construction through divestment of up to 51%.
Furthermore, Maryati added, many critical arenas are still empty and prone to disputes or deadlocks that the Government should be aware of and require public oversight, including oversight by the House of Representatives (DPR). These critical points include: (1) The mechanism for determining the value and disposal of shares, as well as the time frame. Potential deadlocks will occur in the method of calculating and covering underground reserves in valuation. (2) The mechanism for issuing Special Mining License (IUPK), without stipulating the Freeport mining area as a State Reserve Area (WPN) as a prerequisite for Special Mining License (IUPK) – the Government is prone to violating provisions of the Law. (3) The fiscal regime in the Special Mining License (IUPK) scheme requires more detailed clarity regarding fiscal provisions, which are considered stabilization efforts and ensuring more significant state revenue than the current Contract of Work (KK) scheme. The price volatility factor and the trend and direction of financial regulation need to be the variables taken into account in this scheme.
Fabby Tumiwa, Executive Director of IESR, emphasized, for this situation, the Government needs to immediately clarify the agreement with Freeport and determine a compliance and penalty mechanism if Freeport fails to do what has become the agreement, for example: failing to build a smelter in 2022 or being late in divesting 51%, and so.
Given the two agreements regarding divestment and smelter construction, so far have not been appropriately realized, primarily if the agreement’s points were stated yesterday unwritten in a document signed by both parties.
The advocacy manager of Publish What You Pay Indonesia, Aryanto Nugroho, reminded the Government not to give Freeport too often unlimited tolerance amid stagnating commitments. For example, granting concentrate export permits without requiring the development of smelters or easing export duty rates as indicated some time ago if it is suspected that the Government is taking action contrary to the Republic of Indonesia’s Law.
On the other hand, Publish What You Pay regrets the negotiation process between the Indonesian Government and PT Freeport, ignoring environmental considerations and the interests of local and affected communities in the discussion.
Until today, it is not clear what steps the Government has taken in following up the indications of six environmental violations committed by PT. Freeport Indonesia, based on a report by the Supreme Audit Agency (BPK) on the Implementation of PT Freeport’s Contract of Work for 2013-2015.
Among them are the use of protected forest areas, excess disbursement of reclamation guarantees, underground mining without environmental permits, damage due to waste disposal in rivers, estuaries, and seas, post-mining fund liabilities surface subsidence due to underground mining. The Supreme Audit Agency (BPK) calculates Freeport’s potential state losses of Rp. 185.563 trillion. In comparison, the value is greater than the divestment bid figure of 10.64% Freeport shares at the beginning of 2016.