Freeport told to double royalty for expansion go-ahead

Freeport told to double royalty for expansion go-ahead

JAKARTA (JP): Permission for PT Freeport Indonesia to double
daily ore production at its Irian Jaya copper and gold mining
operation hinges on it agreeing to the doubling of its royalty
payments, Minister of Mines and Energy Kuntoro Mangkusubroto said
on Friday.

Kuntoro said the subsidiary of New Orleans-based Freeport-
McMoran Copper and Gold paid the government royalties ranging
from 1 percent to 3 percent, depending on the copper price.

Freeport has applied to increase production to 300,000 metric
tons.

"Discussions are in progress to at least double the royalties
that Freeport Indonesia must pay to the government for daily
production above 200,000 tons," he said.

Freeport will also have to prove its ability to contain the
environmental and social impact of the operational expansion.

According to Kuntoro, the ministry granted Freeport a permit
in principle to raise output in 1997.

It also received the environmental impact analysis permit for
the planned expansion from the State Ministry of Environment in
December 1997, he said.

The Directorate General of Mining allowed Freeport to increase
its ore output to 240,000 tons per day for the period July 1998
to mid-March 1999 in a trial operation to ascertain the company's
capabilities.

"Currently, we are evaluating the results of the trial
operation, including those related to mineral conservation and
protection against physical and social impact (of the
expansion)," Kuntoro said.

President B.J Habibie has instructed several ministers,
including Kuntoro, to assist Freeport in realizing its plan.

Habibie gave the instruction in response to a request from
Freeport McMoRan CEO James "Jim-bob" Moffett, despite Kuntoro's
demand for further assessment of the plan.

Habibie's decision drew flak from environmentalists, Irianese
leaders and legislators. They doubted Freeport's ability to
protect the environment and expressed disappointment at what they
considered the firm's lack of commitment to community
development.

They urged Kuntoro to hold off on allowing Freeport to
increase production until it agreed to higher royalties, improved
environmental management and stepped-up community welfare
programs.

Caltex

Kuntoro also announced the recommendation from House
Commission V, whose jurisdiction includes mines and energy, that
state oil and gas company Pertamina be allowed to develop the
Coastal Plain Pekanbaru (CPP) block in Riau in a joint venture
with PT Caltex Pacific Indonesia.

Caltex holds the production sharing contract on the block
until 2001. If realized, the joint venture would commence in that
year.

The block produces 77,800 barrels per day of crude oil.

In 1997, then president Soeharto decided to allow Pertamina to
take over development of the block after Caltex' contract
expired. Last year, Caltex asked for a review of the decision
following the strongman's resignation.

An inter-ministerial team recommended that the government
allow both Pertamina and Caltex to jointly develop the block.

According to Kuntoro, House Commission V has called on the
government to allow Pertamina to have a majority stake in the
joint venture, as well as serve as the operator of the block.

The commission, according to Kuntoro, argued that Pertamina
needed a joint venture with Caltex to enable the state company to
benefit from Caltex's ability, technology, infrastructure and
experience to maintain security of production at the block.
(jsk)