New Freeport royalty scheme effective this year: Rozik

JAKARTA (JP): Director General of Mining Rozik B. Soetjipto said on Thursday the government would receive higher royalties from PT Freeport Indonesia beginning this year in line with the company's plan to increase ore output at its copper and gold mine in Grasberg, Irian Jaya.

"Freeport plans to mine 220,000 tons per day (tpd) of ore this year. As such, the new royalty scheme which has been agreed on by the company and the government will be effective this year," Rozik was quoted by Antara as saying.

Rozik made the statement in response to consultancy company Econit's allegation that Freeport's new royalty scheme could not be applied this year because of the company's low ore output.

Freeport, a subsidiary of U.S. mining company Freeport McMoRan Copper & Gold, agreed to double its copper royalties to the government from between 1.5 percent and 3.5 percent to between 3 percent and 7 percent of sales. It also agreed to triple its gold and silver royalties from 1 percent to 3 percent of sales.

The new royalty scheme was agreed on by the company in return for the government's permit to increase its ore production to 300,000 tpd.

Under the agreement, the new royalty scheme will be backdated to Jan. 1, 1999, but it is only effective if Freeport's ore output exceeds 200,000 tpd.

Econit, believing Freeport would not raise its output to above 200,000 tpd, dismissed the agreement as "high sounding but empty".

The consultancy company, which is led by economist Rizal Ramli, called on the government to oblige Freeport to pay higher royalties no matter the level of its ore output.

Rozik said that depressed metal prices caused the royalties paid by Freeport in 1998 to drop to about US$14 million from $32 million in 1997.

Econit also criticized the government's failure to renegotiate for more shares in the Grasberg mine in view of Freeport's weak bargaining position because of its need for a license from the government to expand its operations.

Econit said the international community would have understood the move because Freeport was set to reap huge profits from the expansion of its operations, while Indonesia needed the revenues to deal with the economic crisis.

The government owns 9.36 percent of Freeport, Freeport McMoRan holds 81.28 percent and the remaining 9.36 percent is held by PT Indocopper Investama Industries, which is partly owned by PT Nusamba Mineral Industries.

However, Rozik said the government had no plans to renegotiate for higher shares and would honor the contract it signed with Freeport.

"Negotiations for higher royalties are not in line with clauses in the contract," he said.

Rozik dismissed speculation that the increased royalties payable by Freeport, which are considered by mining analysts as "the world's highest royalties", would render the country's mining sector unattractive to foreign investors.

"The new royalty scheme is still competitive in view of the fact that Indonesia has several positive points, including modern and reliable mining policies and excellent geological properties," Rozik said.

However, Rozik said foreign investors were still wary of investing in the country because of political uncertainty. (jsk)