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)