If we look deeper into the context of PT Freeport Indonesia\u2019s contract amendment, it is related to the issuance of the 2009 Mining Law. The law obliges mining
\ncompanies to process their mining products in this country before exporting them, but Freeport had been in operation and was bound by a contract before the law
\nwas implemented.<\/p>\n
Talks about adjusting Freeport\u2019s contract to bring it in line with the law have been going on for a long time. The government said an amendment to the contract
\nneeded to be made and a deadline was set for Jan. 25 this year. However, due to the transfer of power in October 2014, when President Joko \u201cJokowi\u201d Widodo took
\noffice, the deadline was extended for six months. So, on July 25, the amendment of the contract \u2014 not the extension of the contract of work (CoW) \u2014 should have
\nbeen in place.<\/p>\n
There were points discussed as preparations were made for the amendment. They included the construction of smelters, an increase in the government\u2019s stake from
\n9 to 30 percent, the use of local products in Freeport\u2019s operations in Indonesia and issues related to work safety.<\/p>\n
Of those sticking points, the construction of smelters is the most crucial. Had the amendment been made, the smelters would have had to have been in place by
\nJuly 25, or else no amendment could be made. In fact, even up to July 24, there was no clarity on the planned development of smelters in Gresik in East Java or
\nin Papua.<\/p>\n
Technically I do not know for sure what the challenges are that Freeport is facing in building the smelters. There seems to be a strong indication that Freeport
\ndoes not want to amend the contract accordingly because it is already 2015 and the company\u2019s CoW is due to expire in 2021 and any negotiations on a new contract
\ncan only begin in 2019 at the earliest. The company does not want to make an investment simply for it to be forgotten.<\/p>\n
There is a strong impression that Freeport wants to merge its obligation to abide by the law that requires an amendment to the contract with the deadline for
\nrenegotiating the CoW. The company wants to make sure that its investment (in building a smelter) will not come to an end in 2021 before it receives a return on
\nthe investment.<\/p>\n
As far as I can read from the government\u2019s point of view, there is a strong desire on the part of the government to make Freeport Indonesia more Indonesian. The
\naforementioned points, which were proposed by the government, indicate so. This does not necessarily mean nationalization, which is commonly marked by a takeover.<\/p>\n
With regard to the smelter construction, for example, the government cannot just force Freeport to invest. As a business entity it has business calculations to
\nconsider with. With regard to the proposed increase in the government\u2019s stake in the company, similarly, the government has to calculate where the money to buy
\nthe extra shares will come from and which government institution or state-owned company will conduct the purchase.<\/p>\n
With regard to the use of domestic products in Freeport\u2019s operations in Indonesia, the government has to be clear about which products and how to ensure the
\nproducts meet Freeport\u2019s standards. Everything has to be carefully calculated so as not to create new conflicts in the future.<\/p>\n
If making Freeport Indonesia more Indonesian is really the target of the Jokowi administration and Freeport trusts the government that its investment will not
\nbe terminated and the CoW will be extended, I see no problem. Although the smelters have not yet been constructed, Freeport has allocated US$115 million for the
\nsmelters to show its good faith.<\/p>\n
When talking about Freeport the key is the CoW. The questions will be what is in the contract and who drafts it. As far as we know, the extension of the
\ncontract in the past was problematic. It was signed without involving the public. As a result, we know only a little about it, no transfer of technology was
\nstipulated, the Papuan people suffered, etc. What is happening now I think is the new government is trying to make amends for the past mistakes.<\/p>\n
To be fair, however, few can deny that Indonesia depends on the extractive economy. We live by exploiting natural resources. Our problem with the extractive
\neconomy is that almost all the products we extract are for export, while for domestic needs we rely heavily on foreign loans, which must be paid using foreign
\nreserves.<\/p>\n
This is a matter of sustainability. If Freeport stops production, the company will not be the only party to suffer losses. Indonesia will also lose one of its
\nincome sources. As a consequence, we may not be able to pay our debts; the rupiah will depreciate and so on.<\/p>\n
Forcing foreign companies to build smelters and use domestic products in their operations is fine, but it has to be supported by monetary policy in particular.
\nOtherwise, we will be trapped in the so-called backwash effect, in which the money distributed to regions will be re-allocated to Jakarta thanks to the
\ncentralized monetary system.<\/p>\n
In the case of Freeport, if the government is really serious about distributing the cake of development to Papua, it has to oblige Freeport to have its
\nheadquarters in Papua rather than in Jakarta. It also has to force the company to employ locals as it will automatically empower them. Locals will never be
\nempowered unless they are trained.<\/p>\n
The writer is a lecturer at Gadjah Mada University\u2019s school of economics, Yogyakarta.<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/insight-making-freeport-indonesia-more-indonesian", "image": "freeport.jpg" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }