Indonesia wants hihger royalties from Freeport

JAKARTA (JP): Minister of Mines and Energy Kuntoro Mangkusubroto said on Monday that the government was seeking to obtain higher royalties from copper and gold producer PT Freeport Indonesia.

Kuntoro said the ministry was currently negotiating with Freeport, which is exploiting one of the world's largest copper and gold reserves in the Grasberg area in the easternmost province of Irian Jaya.

"The negotiations are underway right now," Kuntoro told journalists at Merdeka Palace after a meeting with President B.J. Habibie.

Kuntoro was accompanied by State Minister of the Empowerment of State Enterprises Tanri Abeng.

Kuntoro said the government made the request because Freeport's copper output had been on the increase and the price of copper was also rising.

But he did not reveal the amount of royalties being requested or specify whether the government was seeking higher royalties from Freeport's gold mine as well as its copper production.

Under the current contract of work (COW), Freeport has to pay the government 1.5 percent of its copper sales in royalties if the price of copper is US$0.90 or less per pound.

The royalties will rise to between 1.5 percent and 2.5 percent of sales if copper prices range between $0.90 and $1.10 per pound.

Freeport must pay 3.5 percent of sales to the government if the price of copper is more than $1.10 per pound.

Under the same contract, Freeport pays the government 1 percent of its gold and silver sales in royalties.

Kuntoro said the President during the meeting had asked him to maintain the conducive investment climate and the country's good image for investment.

"The most important thing is that in the current situation, we want to invite investors and create a workable climate for those who have come."

Chairman of the United States mining giant Freeport McMoRan Copper & Gold James Moffett held a three-hour meeting with Habibie on Saturday, raising speculation that he was launching a high-level lobby to support Freeport's operations.

Freeport has been applying for the government's approval to boost its daily ore output to 300,000 tons from 160,000 tons at present.

Kuntoro has so far refused to approve the expansion plan despite the fact that Freeport has received an environmental impact analysis certificate from the environment ministry and has invested a lot of money in the expansion plans.

Several analysts have speculated that Kuntoro might approve Freeport's expansion plan in exchange for higher royalties from the company's operations. (jsk/prb)