Call to alter Freeport contract 'unrealistic'

Call to alter Freeport contract 'unrealistic'

JAKARTA (JP): Analysts said on Tuesday that the House of
Representatives' call for a review of giant copper and gold
mining company PT Freeport Indonesia's contract of work (COW) was
unrealistic.

Vice chairman of the Indonesian Mining Association (IMA) M.
Simatupang said the demand for the contract review, which
surfaced during Monday's meeting between Freeport's management
and House Commission V for mines and energy, was tantamount to
breaching the contract.

Simatupang believed the government would reject the demand
given its stated commitment to honoring all existing contracts.

Former legislator Iskandar Mandji said a review of the
contract, even if permitted under its terms, would be time
consuming and unlikely to be successful.

"If Freeport is unwilling to renegotiate, the government can't
do anything to force it to renegotiate," Iskandar said.

The commission's deputy chairman Sunardjo was quoted by The
Jakarta Post as calling on the government to renegotiate
Freeport's contract to secure a greater share of the benefits
from the development of huge copper and gold reserves in the
Grasberg area of Irian Jaya.

However, Freeport's vice president of public affairs Yuli
Ismartono denied the commission had called for a review of the
contract.

She said the commission had instead demanded the government
review how revenues raised from taxes and royalties on Freeport's
operations are distributed between the central and provincial
governments.

"The commission has confirmed the misquotation of its
conclusion," Yuli said.

However, some commission members expressed dissatisfaction
with the existing contract and urged the government to review the
deal.

Freeport Indonesia is 85.7 percent owned by the giant U.S.
mining company Freeport McMoRan Copper and Gold Inc. The
remaining shares are owned by the Indonesian government, PT
Nusamba Minerals Industry and members of the public.

Freeport has been at the center of a heated debate since
American scholar Jeffrey A. Winters alleged that corrupt motives
had influenced the renewal of its contract in 1991 and implicated
Coordinating Minister for Economy, Finance and Industry Ginandjar
Kartasasmita in the scandal.

Divestment

Analysts supported the commission's appeal to Freeport to
comply with the divestment terms specified in its 1991 COW, which
obliges the company to sell up to 51 percent of its shares to the
Indonesian government or companies through direct placement
within 20 years of signing the contract.

Freeport reiterated on Tuesday that the divestment obligation
was no longer applicable following introduction of the 1994
Government Regulation No. 20 on foreign investment.

The 1994 regulation allows for the establishment of wholly
owned foreign companies and eases mandatory divestment
requirements.

Yuli said Freeport's contract contains a clause stating that
if, after signing the agreement, laws, regulations, or government
policies impose less burdensome divestiture requirements than set
forth in the contract, the less burdensome requirements shall be
applicable.

She said Freeport had received a letter from the Investment
Coordinating Board (BKPM) confirming that it had been relieved of
its 51 percent divestment obligation.

Iskandar and the Chairman of the Association of Indonesian
Mining Professionals (Perhapi) Herman Afif Kusumo argued that
BKPM's letter was not valid because the mining law requires
alterations to all contracts of work to be referred to the House.

Both said a statement by Freeport's Adrianto Machribie's,
which suggested the Indonesian government and companies could
increase their share in Freeport Indonesia by buying Freeport
McMoRan shares in the New York Stock Exchange, was misleading.

"We have nothing to do with McMoRan's shares. What we want to
buy is shares in Freeport Indonesia," Herman said. (jsk)