Govt to review regulation that 'saves' Freeport

JAKARTA (JP) The government may revoke a governmental regulation which has exempted copper and gold mining company PT Freeport from a mandatory divestment program, a senior official at the Ministry of Mines and Energy said on Friday.

Ministry secretary-general Djoko Darmono said the government would review regulation No. 20/1994 which excused Freeport of its contractual obligation to divest up to 51 percent of its shares to the Indonesian government, companies and private individuals.

"While we must honor Freeport's contract, we can still review the regulation.

"The minister (of mines of energy Susilo Bambang Yudhoyono) has said the regulation should be reviewed to see the reason behind its issuance," Djoko said.

Under the contract of work Freeport signed in 1991, the company is required to divest 51 percent of its shares within 20 years.

However, the contract hinted the company could be freed from this divestment obligation through the issuance of future governmental regulations.

Former president Soeharto's administration issued the 1994 regulation allowing wholly owned foreign investment in the country's mining sector.

Some analysts speculate Freeport lobbied Soeharto to issue the regulation freeing the company of its divestment obligation.

James Moffet, the president of Unites States-based Freeport McMoRan, which controls the majority of shares in Freeport Indonesia, is known to be a Soeharto associate.

Djoko also said the government would review a clause in Freeport's contract which required the company to pay higher royalties to the government.

He noted, however, the review was not tantamount to "renegotiating the contract".

"We'll study the contract, but that doesn't mean that we'll renegotiate it," Djoko said.

He said a clause in Freeport's contract allowed the government to collect higher royalties if the company's production level exceeded 200,000 metric tons per day.

With Freeport's plan to increase production from 160,000 metric tons per day to 300,000 metric tons per day, the government should be paid increased royalties, he said.

Djoko said the government expected Freeport royalties from gold to increase by 200 percent, silver by 200 percent and royalties from copper to rise by 100 percent.

Freeport currently pays the government a royalty of 1.5 percent of its copper sales and 1 percent of its gold and silver sales.

Meanwhile, Association of Indonesian Mining Professionals chairman Herman Afif Kusumo called on the government on Friday to revoke regulation No. 20/1994 to allow the Indonesian people to own more shares in Freeport.

He noted, however, that no national company could afford to purchase stakes in Freeport during the economic crisis.

"In current conditions, who can buy Freeport's shares," he told The Jakarta Post.

Given the situation, he proposed the government pressure Freeport to offer its shares to the public on the stock exchange.

He also said the government should provide Irianese the opportunity to own shares in the company.

Freeport, a subsidiary of American copper and gold mining company Freeport McMoRan Copper & Gold, operates a giant copper and gold mine in the Grasberg area of Irian Jaya.

It is 81.28 percent owned by Freeport McMoRan, 9.36 percent owned by the Indonesian government, with the remaining 9.36 percent stake held by Indocopper Investama Industries.

Indocopper is 49 percent owned by Freeport McMoRan, 50.48 percent by PT Nusamba Mineral Industries, with the remaining 0.52 percent publicly held.

Nusamba is controlled by Soeharto associate Mohammad "Bob" Hasan. ((03)