After the government, through the Ministry of Energy and Mineral Resources (ESDM), announced that the negotiation agreement was reached with PT Freeport Indonesia (PTFI), the public is still waiting for the agreement’s points to be translated into a document that has legal force. Based on the two parties’ agreement, Freeport’s presence in Indonesia after this will be based on a Special Mining License (IUPK) replacing a Contract of Work (KK).

“When the freeport stated that it agreed to divest 51% and when the government declared that it had succeeded in conquering the freeport, it was only in the context of statements that had no legal documents yet,” said Executive Director of the Jurist Institute College, Ahmad Redi, in a discussion on “Considering Government Divestment Measures against Freeport. “, Thursday (14/9), at the Postgraduate Campus of Pancasila University, Jakarta.

Redi assessed that the government’s media statement some time ago regarding the negotiation agreement with PTFI was only a commitment. In the form of a Special Mining License (IUPK) or other government regulations, the absence of legal documents is the follow-up to the negotiation agreement.

Questioning the agreement, Redi highlighted the point of the 51% divestment of PTFI shares that was only agreed upon before the end of the PTFI Contract of Work (KK) extension period in 2021. According to Redi, the government should have completed the discussion regarding the divestment of 51% PTFI shares long before the Contract of Work (KK) validity period ended. He identified several things that have caused the unrealized divestment of PTFI shares so far.
First, there is a problem in the law-making process (regulation formation). The problem with the formation of regulations regarding mining in the mineral and coal sector seems inconsistent in regulating the size of PTFI’s divestment shares. “The government’s consistency is also unclear,” he said.

Besides, the divestment provisions have existed since Law Number 11 of 1967 concerning Basic Mining Provisions. The regulation regarding divestment in Law No.11 of 1967 is then strengthened in several derivative regulations such as in Government Regulation (PP) No.20 of 1994 concerning Share Ownership in Companies Established in the Context of Foreign Investment.

“Why can’t it be implemented? Because of the law making process problem. The law politics is unclear, “said Redi.

Second, interpretation problem. The problem of interpretation here is related to Law No.4 of 2009 concerning Minerals and Coal. Article 169 letter b states that the provisions in the coal mining exploitation work contract article and work agreement referred to in letter a shall be adjusted not later than 1 (one) year since this law was promulgated, except regarding state revenue.
According to Redi, based on the provisions of Article 169 letter b, a contract renegotiation has to be carried out, which also regulates the matter of divestment 51%, a maximum of 1 year after this law comes into effect, namely in 2010. “Said Redi.
Third, the implementation problem. In this regard, the Contract of Work (KK) in 1991 arranged the divestment of 51% of the shares to a reasonably technical realm. Article 24, paragraph 4 reads, “… after all the proceeds from the sale of said shares and any shares which are now or subsequently owned by the government, 45% of the issued share capital of the company provided that at least 20% of the issued share capital is not sold in The Jakarta Stock Exchange. Companies are required to sell or attempt to sell at a public offering on the Jakarta stock exchange, or in other ways to the Indonesian National Party with sufficient shares to reach an amount, namely 51% of the company’s issued share capital, not later than the anniversary the 20th date of signing of this agreement…”.

Coal
Discussion on “Considering the Government’s Divestment Steps against Freeport,” Thursday (14/9), at the Post-Graduate Campus of Pancasila University, Jakarta. Photo: DAN
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After the government, through the Ministry of Energy and Mineral Resources (ESDM), announced that the negotiation agreement was reached with PT Freeport Indonesia (PTFI), the public is still waiting for the agreement’s points to be translated into a document that has legal force. Based on the two parties’ agreement, Freeport’s presence in Indonesia after this will be based on a Special Mining Business Permit (IUPK) replacing a Contract of Work (KK).

“When the freeport stated that it agreed to divest 51% and when the government declared that it had succeeded in conquering the freeport, it was only in the context of statements that had no legal documents yet,” said Executive Director of the Jurist Institute College, Ahmad Redi, in a discussion on “Considering Government Divestment Measures against Freeport. “, Thursday (14/9), at the Postgraduate Campus of Pancasila University, Jakarta.

Redi assessed that the government’s media statement some time ago regarding the negotiation agreement with PTFI was only a commitment. Due to the absence of a single legal document, either in the form of a Special Mining License (IUPK) or other government regulations, as a follow-up to the negotiation agreement.

Questioning the agreement, Redi highlighted the point of the 51% divestment of PTFI shares that was only agreed upon before the end of the PTFI CoW extension period in 2021. According to Redi, the government should have completed the discussion regarding the divestment of 51% PTFI shares long before the CoW validity period ended. . He identified several things that have caused the unrealized divestment of PTFI shares so far.

(Read Special Report: Observing the Mining Business Post-Issuance of Coal and Mineral Government Regulations)

First, there is a problem in the law-making process (regulation formation). The problem with the formation of regulations regarding mining in the mineral and coal sector seems inconsistent in regulating the size of PTFI’s divestment shares. “The government’s consistency is also unclear,” he said.

Besides, the divestment provisions have actually existed since the enactment of Law Number 11 of 1967 concerning Basic Mining Provisions. The regulation regarding divestment in Law No.11 of 1967 is then strengthened in several derivative regulations such as in Government Regulation (PP) No.20 of 1994 concerning Share Ownership in Companies Established in the Context of Foreign Investment.

“Why can’t it be implemented? Because of the law-making process problem. The law politics is unclear, “said Redi.

Second, interpretation problem. The problem of interpretation here is related to Law No.4 of 2009 concerning Minerals and Coal. Article 169 letter b states that the provisions in the coal mining exploitation work contract article and work agreement referred to in letter a shall be adjusted not later than 1 (one) year since this law was promulgated, except regarding state revenue.

(Also Read: Freeport Negotiations, A Pseudo New Chapter?)

According to Redi, based on the provisions of Article 169 letter b, a contract renegotiation has to be carried out, which also regulates the matter of divestment 51%, a maximum of 1 year after this law comes into effect, namely in 2010. “Said Redi.

Third, the implementation problem. In this regard, the COW in 1991 arranged the divestment of 51% of the shares to a reasonably technical realm. Article 24, paragraph 4 reads, “… after all the proceeds from the sale of said shares and any shares which are now or subsequently owned by the Government, 45% of the issued share capital of the company provided that at least 20% of the issued share capital is not sold in The Jakarta Stock Exchange, companies are required to sell or attempt to sell at a public offering on the Jakarta stock exchange, or in other ways to the Indonesian National Party with sufficient shares to reach an amount, namely 51% of the company’s issued share capital, not later than the anniversary the 20th date of signing of this agreement…”.

Fourth, capacity problem. Redi referred to the Minister of Energy and Mineral Resources Regulation No.5 of 2017 and the Minister of Energy and Mineral Resources No. 6 of 2017, which according to him, contradicts the Coal and Mineral Law. According to Redi, the two ministerial Regulations’ provisions created severe legal problems because they contradicted the Coal and Mineral Law.

(Also Read: Regarding the Government Agreement with Freeport, this is PUSHEP’s Response)

“Regarding downstream, 2014 is no longer allowed to export ore and concentrate, but Ministerial Regulation five and six are changed again. Those Ministerial Regulations say that the Special Mining License (IUPK) and the Contract of Work (KK) can be given to the same object. So public law and private law are combined, “he said.

The Coordinator of Publish What You Pay (PWYP), Maryati Abdullah, conveyed that there were steps skipped from the discussion regarding Freeport. Supposedly, five years before the termination or expiration of the PTFI contract, the government should focus on discussing whether the PTFI contract will be extended or not in Indonesia.

“In terms of the negotiation process, if the contract is about to end and we as the government are the holders of mineral property rights, will the issue go directly to building a smelter and divesting? There is one process that we go through, namely, five years before the contract ends. One thing that should be discussed is whether the freeport contract will be extended or not. Operatorship by freeport will be extended or not. That is before, “said Maryati.

Meryati regretted that there was no prior evaluation of the PTFI Contract of Work (KK), which will expire in 2021 to become a database to determine the fate of the PTFI contract to be extended or not. “There is no obligation for us to extend,” he said.

Yarsi University Economic Law Expert Chandra Yusuf, on the same occasion, reminded that currently, Freeport-McMoran has considerable debt. Therefore, Freeport needs cash to reduce its’ massive debt’. Therefore, Chandra indicated that the 51% divestment of shares was Freeport’s strategy to refresh its asset structure.

“So far, Freeport-McMoran has never restructured its company assets,” Chandra reminded.

Chandra also mentioned that Freeport McMoran shares had offered zero value during the past two decades, even though profit sharing with the government has been withheld. Freeport still loses 1 percent every year. Therefore, the government must find out more about Freeport’s current capacity.