House to question Freeport

House to question Freeport

JAKARTA (JP): The House of Representatives will push giant
copper and gold mining company PT Freeport Indonesia to disclose
its divestment program, to remove controversy over the Indonesian
ownership in the mining company.

Legislator FX Soejitno of the Armed Forces (ABRI) faction told
The Jakarta Post on Saturday that Freeport had to clearly divulge
to the public the amount of shares it had to sell to the
Indonesians in line with its contract of works (COW) and how it
would conduct the divestment program.

"The public needs to be informed fully on the divestment
program," said Soejitno, a member of the House Commission V for
industry, mining, trade and manpower, which will hold a hearing
with Freeport on Monday.

Freeport was at the epicenter of heated debates last week
after American scholar Jeffrey A. Winters alleged corruption and
collusion in the renewal of its contract in 1991 and implicated
Coordinating Minister for Economy, Finance and Industry Minister
Ginandjar Kartasasmita in the scandals.

Freeport, a subsidiary of the United States giant copper and
gold producer Freeport McMoRan Copper & Gold, which is listed in
New York, received its first COW in 1967 for the development of
copper reserves in Irian Jaya. It renewed the COW in December
1991 after finding the world's largest copper and gold reserves
in the province's Grasberg area.

However, the content of Freeport's COW remained obscure to the
public until Coordinating Minister of Economy, Finance and
Industry Ginandjar Kartasasmita revealed in a statement last week
that Freeport, under the contract, is obliged to divest up to 51
percent of its shares to national companies or individuals
within in 20 years.

If Freeport sells 20 percent of its shares on the Jakarta
Stock Exchange, the contract stipulates, the company is only
obliged to divest 45 percent of its shares. The remaining 25
percent can be sold to national companies and individuals through
direct placement.

Freeport McMoRan currently owns 81.28 percent of the company.
The Indonesian government owns 9.36 percent and the remaining
9.36 percent is held by PT Indocopper Investama Corp. (IIC).

IIC, which was formerly controlled by the Bakrie Group, is 49
percent owned by Freeport McMoRan, 49 percent by PT Nusamba
Minerals Industry and 1 percent by the investing public.

An informed source, however, told the Post that following the
introduction of a new regulation on foreign investment in 1994,
Freeport was no longer required to divest up to 51 percent of its
shares to local partners.

The regulation allows, among other things, the establishment
of a wholly owned foreign company and eases the mandatory
divestment requirement.

The source said that after issuing the foreign investment
regulation, which is officially called Government Regulation No.
20 of 1994, Freeport's then-president, Hoediatmo Hoed, had
requested the then-minister of investment/chairman of investment
coordinating board, Sanyoto Sastrowardoyo, to free it from the
divestment obligation under the 1991 contract.

Freeport's COW contains an escape clause stating that the
divestment terms on the contract can be modified if there is a
favorable regulation to do so.

Consultation

But Sanyoto, backed by "someone at the top", approved the
request without consultation with the House, as required by the
existing mining law, the source said.

Under the existing mining law, a COW is to be signed by
minister of mines and energy after consulting with the House and
getting approval from the President.

Former legislator Tadjuddin Nur Said, who was a member of the
House's commission in charge of mining affairs from late 1980s to
1995, confirmed that the change in the divestment obligation had
not yet been consulted with the House.

"If the information (that the contract has been changed) is
true, it is a real violation of law. Any change to the contract
should be consulted with the House," Tadjuddin said, noting that
a COW is a lex specialis (special law), slightly lower than a law
in stature but higher than a government regulation in the
country's legal system.

Freeport's senior manager of public affairs department, Yuli
Ismartono, refused on Saturday to comment on the subject, while
Hoediatmo, who currently serves as Freeport's commissioner, was
not available when contacted by telephone at home.

"He is out of town," said a woman who identified herself as
Hoediatmo's wife.

Analysts say the 1994 governmental regulation No. 20 does not
automatically annul Freeport's divestment obligation under
contract, referring to the case of the country's largest mining
company, PT Kaltim Prima Coal (KPC), which develops huge coal
reserves in Sangatta, East Kalimantan.

KPC, which started production in 1992, is required under
contract to divest up to 51 percent of its shares to Indonesians
between the fifth and 10th of year of its commercial production.
(jsk)