New Freeport royalty scheme effective this year: Rozik

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)