Jakarta – Publish What You Pay (PWYP) Indonesia urges the government to follow up on potential losses from environmental violations indications of PT. Freeport Indonesia. Signs of environmental violations are suspected of causing losses of 185 trillion rupiahs. Based on a report by the Supreme Audit Agency (BPK) on the implementation of PT Freeport’s Contract of Work for 2013-2015, as reported by several media last week.

Maryati Abdullah, the National Coordinator of PWYP Indonesia, emphasized, “This issue must be explored and used as material for discussion in the process of renegotiating the Freeport Contract of Work, which is currently underway. Environmental issues are no less important than other renegotiation issues, which involve economic aspects such as taxation, divestment, and the obligation to build smelters in the country.”

Aryanto Nugroho, Advocacy Manager of PWYP Indonesia, added, “In the process of renegotiating the Freeport Contract of Work, the government seems to be helpless. After threatening each other to report it to arbitration, the government has finally issued a concentrated export permit for one year through the Temporary Mining Licence (IUP). – which incidentally contradicts Law number 4 of 2009 concerning Mineral and Coal Mining.” Those policies that are deemed contrary to the Law (Government Regulation Number 1 the Year 2017) are currently being challenged at the Supreme Court (MA).

Indication of Export Duty Violation

Apart from environmental issues, there are indications of easing the export duty imposed on Freeport from 7.5% to only 5%, as reported by several media on Friday (12/05/2017). PWYP Indonesia assesses that if this happens, it will be a potential loss to the state again. The reason is the export duty rate imposed on Freeport based on the Minister of Finance Regulation (PMK) Number 13 of 2017. The calculation is based on the physical progress of the construction of a refining facility (smelter), where if the development is still below 30%, then an export duty of 7.5% is imposed. If this happens, the state’s potential loss from the difference in copper’s export duty concentrate with a CU content of <= 15% for a year is estimated at Rp. 586 billion Rupiah, using the assumption of the Export Reference Price (HPE) in May (Rp. 1619.64 USD / WMT); Exchange Rate 1 USD = Rp. 13,000; and the total volume of copper with CU grade> = 15% according to the concentrate export permit granted by the Government to Freeport amounting to 1,113,105 WMT (Wet Metric Ton).

Editorial Note

In presenting the draft of the Supreme Audit Agency (BPK) report cited by several national media, the Supreme Audit Agency (BPK) found several potential environmental violations committed by PT. Freeport Indonesia (PTFI) and the potential losses incurred. The five main points of the violation are:

  1. Freeport has used protected forest areas in its operational activities with an area of ​​4,535.9 hectares (ha), which contradicts Law Number 41 of 1999 concerning Forestry in conjunction with Law Number 19 of 2004 concerning Stipulation of Government Regulations in place of Law No.1 of 2004 concerning Amendments to Law No. 41 of 1999 concerning Forestry into Law. There is a potential loss of Non-Tax State Revenue (PNBP) worth IDR 270.83 billion from the use of protected forest land from 2008-2015.
  2. The Supreme Audit Agency (BPK) found an excess of disbursement of the reclamation guarantee fund (JamRek) of US $ 1.43 million, or the equivalent of Rp.19.43 billion, where the results of the Geographical Information System (GIS) analysis showed that there was an overlap in the implementation of reclamation between block/area one and block/area other. Thus, the government disbursed Freeport’s excess reclamation guarantee funds.
  3. Freeport has not submitted the post-mining guarantee obligation for the 2016 period of US $ 22.28 million, as stipulated in article 26 of the Contract of Work as well as in the Regulation of the Minister of Energy and Mineral Resources Number 7 of 2014 concerning Reclamation and Post-mining Implementation in Mining Business Activities Minerba.
  4. Freeport mine waste disposal activities have caused environmental damage in rivers, estuaries, and estuaries, including marine areas. This condition causes a potential loss of IDR 185.01 trillion or equivalent to the sacrificed ecosystem’s entire value.
  5. Freeport has carried out mining activities underground or the Deep Mill Level Zone (DMLZ) without an Environmental Permit.