Freeport accused of messing up investment climate in mining sector

JAKARTA (JP): A mining executive expressed on Monday concerns over President B.J. Habibie's support for mining company PT Freeport's expansion plan, saying the high-level lobby by the company to gain support for its expansion had upset the investment climate in the mining sector.

Gerry Mbatemooy, vice president of PT Billiton Indonesia, a subsidiary of the London-based mining giant Billiton, said that under the contract of work (COW), the minister of mines and energy, who also authorized the contract, held the right to supervise the operation of a mining company and license a mine's expansion.

Freeport's move to bypass the minister to get the president's support for its expansion plans undermined the rules established in the COW, he said.

"Mining investors are really concerned with the company's action and the president's decision," Gerry said.

"Freeport's case has caused the misperception that investors can discard COW terms if they have connections with the president. What's then the use for mining companies to comply with their COW, if other companies can easily bypass it?" Gerry said.

Gerry noted that the COW scheme and the government's consistency with the rules is one of the main attractions of the investment climate in the country's mining sector.

"The president has confused investors with his decision," Gerry said.

Habibie has instructed several ministers, including Minister of Mines and Energy Kuntoro Mangkusubroto, to help Freeport realize its plan to increase its ore output to 300,000 metric tons per day (tpd) at its Grasberg copper and gold mining field in Irian Jaya, although Kuntoro demanded further assessment of the expansion plan.

Habibie gave the instruction in response to the request from James "Jim Bob" Moffet, CEO of Freeport's holding company Freeport McMoRan Copper & Gold of the United States.

Freeport has been licensed to produce 160,000 tpd of ore but is currently producing more than 200,000 tpd as part of its trial operation for the expansion.

Freeport has thus far obtained only the compulsory environmental impact analysis certificate and the provisional permit to conduct a feasibility study and trial operation for the expansion.

The expansion plan has drawn protests from environmentalists and the Irianese, who were doubtful about Freeport's ability to protect the environment around the mine site and said the company's contribution to the welfare of the tribal people living around the mine was inadequate.

Despite Habibie's instruction, Kuntoro said he would only license Freeport's expansion if the company agrees to increase the royalties to the government and proves its technical ability to protect the environment surrounding the mine.

Chairman of the Indonesian Mining Association Benny Wahyu refused to comment on Freeport's expansion plan lobby.

"I don't want to comment about business ethics," he said.

But, he said, Freeport's aggressive move to gain support for its expansion plan was understandable given the collapsing price of mining products, which has left many companies no choice but to increase their output to survive.

Gerry supported Kuntoro's demands for higher royalties and Freeport's assurance for environmental protection, citing an article in the COW stipulating that a mining company has to discuss with the government its expansion plan in good faith.

"The good faith cited in the COW means that mining companies which plan expansion must be willing to negotiate with the government for a win-win solution," Gerry said.

Freeport is 81.28 percent owned by the New Orleans-based Freeport McMoRan with the Indonesian government and PT Indocopper Investama Corporation each owning 9.36 percent. (jsk)