Govt 'broke rules' over Freeport's obligations

JAKARTA (JP): Former mines and energy minister Subroto said on Wednesday the government contravened accepted practices by not informing legislators that it had relieved copper and gold mining company PT Freeport Indonesia of its divestment obligation.

"Since the contract involved consultation with the House of Representatives (before being signed by the government and Freeport), the House should at least be informed," Subroto said.

"That's the rule of the game."

The former secretary-general of the Organization of Petroleum Exporting Countries (OPEC) was commenting on media reports that former minister of investment/chairman of the investment coordinating board (BKPM), Sanyoto Sastrowardoyo, relieved Freeport of its contractual obligation to divest up to 51 percent of its shares to the Indonesian government and local companies.

In a letter reportedly sent to Freeport, Sanyoto confirmed that the mining company was no longer required to meet the divestment requirement in accordance with the new government regulation on foreign companies.

Legislators have insisted that any change in the contract should have involved prior consultation with them.

Under the contract of work (COW) signed by the government and Freeport in December 1991, Freeport was obliged to divest up to 51 percent within 20 years.

Freeport Indonesia, which is developing the world's largest copper and gold reserve in the Grasberg area of the Irian Jaya province, is 85.7 percent owned by New Orleans-based Freeport McMoRan. The remaining shares are held by the Indonesian government and PT Nusamba Minerals.

Scandal has enveloped Freeport since American scholar Jeffrey A. Winters alleged early last week that corrupt motives had influenced the renewal of its contract in 1991. He implicated Coordinating Minister for Economy, Finance and Industry Ginandjar Kartasasmita, who was mines and energy minister when the deal was made.

With the spotlight on the company, the local media also exposed alleged irregularities in Freeport's divestment program.

Freeport's president Adrianto Machribie said earlier that Sanyoto's letter did not change Freeport's contract. He argued that it only confirmed the application of the escape clause in the contract following the introduction of governmental regulation No. 20 of 1994, which allows the establishment of wholly owned foreign companies.

The escape clause states that if the government subsequently introduces regulation or policies which impose less burdensome divestiture obligations, the less burdensome requirements shall be applicable.

Breach

Meanwhile, Director General of Mining Rozik B. Soetjipto said on Wednesday that Sanyoto did not breach any regulation.

"The 1994 governmental regulation No. 20 automatically annuls Freeport's divestment obligation. The government did not need to consult with the House about it because they had earlier agreed on the escape clause," Rozik said on the sidelines of a seminar on COWs organized by Swasembada magazine, Spotcom communication company and the Indonesian Mining Association (IMA).

Rozik said the government would not renegotiate Freeport's COW but would seek to increase its royalty through negotiations acceptable to Freeport. He did not disclose how much the government was seeking.

Legislator Priyo Budi Santoso of the ruling Golkar political grouping, who also made a presentation at the seminar, insisted the government should have consulted with the House on its decision to end the divestment obligation.

"I really regret that BKPM secretly issued the letter (to relieve Freeport of its divestment obligation). I hope similar things will not happen again in the future."

He called on the government to take measures to ensure that it would control 51 percent of Freeport's shares by 2011.

Subroto said he observed several irregularities in Sanyoto issuing the letter.

"Did BKPM have the right to make a policy regarding divestment in mining companies? Or did the BKPM letter carry a decision from the president (Soeharto)?" Subroto asked.

Subroto said the mining sector was under the supervision of the Ministry of Mines and Energy in coordination with several ministries, including the Ministry of Finance and BKPM

"Formerly, no minister was allowed to make his own decision with regard to mining. Instead, we coordinated among each other and the ministry which served as coordinator made the decision," Subroto said. (jsk)