Sabtu, 12 April 2014

GOVT WILL NOT EXTEND FREEPORT CONTRACT BEFORE 2019

By Andi Abdussalam
          Jakarta, April 12 (Antara) - The government will not extend the work contract of US-based gold and copper mining firm PT Freeport Indonesia prior to 2019, though the company is currently seeking an extension of its contract.
         "There has been no decision now regarding the extension of Freeport Indonesia because the contract can only be extended two years before it expires," Director General of Mineral Resources and Coal R Sukhyar said in Jakarta on Friday.
         The work contract extension signed by Freeport and the government in 1991 will expire in 2021, resulting in Freeport only being able to propose an extension in 2019.
         Rumors suggested that Freeport's work contract would be extended, along with its revisions, following the enacting of a law which requires all mining firms to build smelters.
         The law, Law No.4/2009 on Mineral and Coal Mining, also bans the exports of unprocessed mineral ore. Due to this new requirement, all contracts for mining firms have to be revised.
   "We are negotiating on six points of revision in the work contract, but none of the six points are about contract extensions," stated Sukhyar.



         Article 169 of the law stipulates that contracts of companies holding both mineral mining permits (KK) and coal work contract licenses (PKP2B) --which had been effective prior to the issuance of Law No.4/2009-- will remain in force until its expiry date. The provisions contained in the KK and PKP2B articles must be adjusted to the law through negotiations, noted officials.
         The six points consisted of construction smelters by mining firms, reduction of mining areas, the change of contracts into mining business licenses (IUP), the increase of royalty payments for the state, divestment and the use of local contents in the mining services.
         The government has set a target to finish amending all contracts of mining companies before October this year, as part of its efforts to comply with Law No. 4/2009 which bans mineral ore exports.
         Law No.4/2009 banned raw mineral exports as of January 12, 2014, requiring companies in the mining business  --both mineral mining and coal mining, and those which export raw minerals-- to amend their contracts.
         "All companies holding mineral mining permits (KK) and coal-contracts for work licenses (PKP2B) should have signed contract amendment agreements before the end of President Susilo Bambang Yudhoyono's administration term in October," Minister of Energy and Mineral Resources Jero Wacik stated last month.
         Jero Wacik noted that all 112 holders of KK and PKP2B permits are expected to sign contract amendment agreements before October as part of the efforts to implement the law. Under the law, mining companies are required to process minerals inside the country before exporting them.  
    According to Director General Sukhyar, Freeport has agreed to new regulations on mining areas, gold royalty payments of 3.75 percent - previously set at only one percent - the use of local content and the obligation to build a smelter. But it has not yet agreed to the divestment regulation.

         "This still needs negotiations," Sukhyar added.
         On the construction of smelters, Freeport earlier proposed a cooperation through a public private partnership (PPP) scheme. 
    "Freeport wants to follow Law No.4/2009, but for the construction of smelters it offers a PPP scheme. Freeport is to inject funds while we provide incentives," Chief Economic Minister Hatta Rajasa said.

         Further, Hatta denied rumors that Freeport's work contract extension were included in the negotiations.
         The giant copper and gold mining company from the US has submitted an application for the extension of its contract for 20 years, or 2041, citing the assurance of its receiving a  return on its investment.
         Freeport is preparing an investment of US$16 billion to develop a deep ore mining zone (DOZ), seeking a return of its investment after 2021.
         "There has not been any extension, as some strategic issues are still to be discussed by the new government," he explained here on Friday, referring to the change of government to occur in October.
         He clarified that renegotiation of the contract was not urgent and not a priority of the current government, as the contract's expiration is still years away.
         "It is wrong if it is not settled. But is it an urgent thing to do or not if the contract is to expire only in 2021? If it is not,  let the new government deal with it or decide whether it will be concluded or extended," he asserted.
         The same concern was also raised by Energy and Mineral Resources Deputy Minister Susilo Siswoutomo. "Based on the Government Regulation, the application for the extension of its operation could only be submitted two years before the end of its contract."
    "So, if the contract expires in 2021, then they may submit the application in 2019, at the earliest," the deputy minister said on Friday.

         Article 45 of Government Regulation No 23 of 2010 on minerals and coal mining activities stipulates that applications for contract extensions must be submitted two years, at the earliest or six months at the latest, before the contract expires.
         The Deputy Minister denied that the government had extended the mining contract of PT Freeport.  "There is no extension yet, nor has there been lobbying about it, so far. We will follow the procedures based on the government regulation in force," he asserted.
         Susilo Siswoutomo explained that PT Freeport Indonesia could submit an application for extension of its contract in 2019, at the earliest. Freeport, he pointed out, must follow the provisions as stipulated in the government regulations.
         The current working contract of PT Freeport Indonesia was signed in 1991 and is scheduled to expire in 2021.
         The Indonesian government signed its first work contract with Freeport McMoran Inc on April 7, 1967, with exclusive mining rights on a 100 sq km tract in Ertsberg, Papua. The contract was extended on December 30, 1996.
         From 1992 to 2013, the Indonesian government received US$15.2 billion, including US$9.4 billion in corporate income tax, US$3 billion in workers' income, regional  and other taxes, US$1.5 billion in royalty payments and US$1.3 billion in dividends.
         However, PT Freeport Indonesia, which has large copper and gold mines in Papua, would not pay dividends from its profit in 2013.
         No shareholder, including its principal FreeportMcMoRun Copper & Gold or the government, will receive dividends, company vice president Daisy Primayanti said in a press release late last month.
         "There are a number of factors behind the decision, such as a decline in sales of copper and gold because of the introduction of lower grades of ore, disturbances in mining operations, falling commodity prices in the world market  and the use of some US$1 billion in cash to support underground mine investments in 2017," Daisy said.***2***
(A014/INE/S012)
(T.A014/A/BESSR/Suharto) 12-04-2014

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