Govt 'broke rules' over Freeport's obligations

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)