Jakarta – The Indonesian government, through the mining industry holding company PT Indonesia Asahan Aluminum (Persero) or INALUM, signed a Heads of Agreement (Principal Agreement) with Freeport McMoran Inc. (FCX) and Rio Tinto regarding the sale of FCX shares and Rio Tinto’s right to participate in PT Freeport Indonesia (PT FI) on Thursday, July 12, 2018. On this basis, various media have reported that the government has controlled 51% ownership in PT-FI.

The Civil Society Coalition, Publish What You Pay (PWYP) Indonesia, on the one hand, appreciates the goodwill and efforts of the government over the past 3.5 years to resolve the Freeport contract polemic towards the end of the contract period in 2021. Nevertheless, on the other hand, Publish What You Pay reminded that there is still much work to be done and detailed regarding the certainty of natural resource management in the Papua region. The process must also be transparent and accountable, it requires the parties’ consistency in holding the agreement, and it is necessary to consider various aspects comprehensively, including environmental, social, and the interests of local communities in Papua.

Unfinished Deal

Maryati Abdullah, the National Coordinator of PWYP Indonesia, stated, “The step in signing the Heads of Agreement still leaves many questions to be studied critically, in order to benefit the nation and society truly, including: How is the method of valuation/determination of the value of Indonesian share ownership in PTFI; Has a final understanding of the amount and value of the calculation/interpretation been reached? – Is the signing of the agreement final, so that it can be said that the ownership of 51% of the shares is valid ?; Furthermore, with the HoA, it is implied that Freeport’s mine management will continue until 2041. The question is whether an agreement has been reached in the form of management, which according to Indonesian law, is no longer in the form of a Work Contract but an IUPK (Special Mining Business Permit). ) – meaning that PTFI does not only have to release 51% of its shares to be owned by Indonesia. However, it needs to be emphasized, PTFI must also agree on a clause of the obligation to carry out domestic processing and refining to increase added value, agree on prevailing fiscal and taxation provisions required by the government, and be willing to comply with all environmental and social standards applicable in the Indonesian jurisdiction. If not, then the government can at any time impose sanctions and even terminate the Freeport IUPK. ”

A similar sentiment was conveyed by Fabby Tumiwa, Executive Director of the Institute for Essential Service Reform (IESR), “The newly signed agreement is the Head of Agreement. Many details are still being negotiated between FCX ​​and the Government of Indonesia. Basically, the results of negotiations in August 2017 and July 2018 have not changed much even though the value of the acquisition of ownership has been agreed upon at $ 3.85 billion. However, it should be noted that $ 3.5 billion in Rio Tinto’s participating interest payment in current operations and $ 350 million for FCX. With this fact, the government needs to clarify the claim that Indonesia has controlled 51% of PT-FI shares. The public needs to pay close attention to the next stages of negotiations, including implementing Freeport’s responsibility to deal with environmental damage from its operations so far. Do not let that burden become a burden transferred to Inalum and control the majority of shares in PT-FI. ”

Consideration of Environmental and Social Aspects

Aryanto Nugroho, Advocacy Manager at PWYP Indonesia, also urged the government first to investigate 6 (six) indications of 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, namely (1) Regarding the use of protected forest areas, (2) Excess reclamation guarantee disbursement, (3) Underground mining without environmental permits, (4) Damage due to waste disposal in rivers, estuaries and seas, (5) post-mining fund liability payable, and (6) subsidence due to underground mining. So far, these problems have yet to find a straightforward solution, even though the BPK has calculated the fantastic amount of potential state losses incurred by Freeport, amounting to Rp.

Other issues that are still the government’s homework include resolving 47 (forty-seven) environmental violations of PT-FI from the findings of the Ministry of Environment (KLHK), which include the inconsistency of Freeport’s operations with the environmental monitoring and management plan (RKL-RPL). PT-FI does not monitor and control various pollution in the air, sea, rivers, and forests; Included among the pollution is waste categorized as hazardous and toxic materials (B3).

Meanwhile, Nurkholish Hidayat from the Law and Human Rights Office – LOKATARU reminded the parties who agreed not to ignore the status and condition of PT. Freeport Indonesia’s workers, especially the 8400 workers, were dismissed unilaterally by management because they were considered absent. Nurcholish regretted the absence of a vote from the government – particularly the Minister of Manpower regarding the workers’ fate who went on strike. “The government’s concern for workers’ conditions should be as great as attention to environmental and economic conditions,” added Nurcholis, who is also the representative of civil society at EITI Indonesia.

Transparency and Accountability are Required

“The government must be open and transparent to the public regarding determining the value and release of PT-FI shares, which requires funds of US $ 3.85 billion. Several things deserve the spotlight. What is the route and the valuation mechanism, what components are calculated? Does this also include the source of the divestment financing? Do not let “overvalue” occur, which in the end will cause losses to state finances, “said Fabby, who is also the Chairman of the Advisory Board of PWYP Indonesia.

Maryati emphasized that “Transparency is crucial so that the public and all parties get correct and balanced information about the actual situation of the ongoing process so that there is no asymmetrical information, which can lead to mistakes – even unhealthy public polemics – due to ignorance and lack of information. ” Documents and information on agreements and understandings can be shown and opened to the public so that there is no misinterpretation. For example, from the HoA process yesterday, why was it not the HoA content detailed – instead, press releases from each party were circulating, which could have different points of emphasis from one another.

As part of accountability, Publish What You Pay appreciates the government’s efforts to report each process’s progress to the public. However, if there is no transparency, the potential for misleading information or opinion politicization is very vulnerable. On the other hand, with openness and Transparency, debate and healthy discourse will develop and be constructive. The standards of Transparency and public information disclosure according to the law that we have also require the government to provide policy reasons and arguments that are as clear as possible to the public on the basis for considering a public decision taken.

Jakarta, July 13, 2018
The National Coalition for Publish What You Pay Indonesia

Maryati Abdullah
National Coordinator

Contact Person:
Aryanto Nugroho (aryanto@pwyp-indonesia.org)
Maryati Abdullah (maryati@pwyp-indonesia.org)
Fabby Tumiwa (fabby@iesr.or.id)