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)