PT Freeport agrees to raise royalties

PT Freeport agrees to raise royalties

JAKARTA (JP): Mining company PT Freeport Indonesia agreed to
pay more royalties to the government in return for a license to
increase ore output at its copper and gold mine in Irian Jaya to
300,000 metric tons per day (tpd).

"We received confirmation from the company on Friday that it
agreed to raise the royalties," Minister of Mines and Energy
Kuntoro Mangkusubroto said on Friday.

Kuntoro said the subsidiary of United States mining company
Freeport McMoRan Copper & Gold Inc., agreed to double the
royalties from its copper mine and triple royalties from its gold
and silver mine if ore production at its Grasberg mine exceeded
200,000 tpd.

The new royalty scheme will be backdated to Jan. 1, 1999,
Kuntoro said.

Under the contract of work signed in late-1991, Freeport pays
royalties of 1.5 percent of its copper sales to the government if
the price of copper is US$0.90 or less per pound.

Copper royalties increase to between 1.5 percent and 3.5
percent if the price of copper is more than $0.90, but less than
$1.1 per pound.

If the price of copper is more than $1.1 per pound, the
company pays the government 3.5 percent of its sales in
royalties.

Freeport also has to pay royalties of 1 percent to the
government on its gold and silver sales.

Kuntoro said negotiations were currently in progress between
the ministry and Freeport on several other requirements that the
company had to meet before it could secure a permit for its
planned expansion, including providing the necessary facilities
to ensure that the expansion does not negatively impact the
environment.

Freeport has aggressively lobbied the government, including
President B.J. Habibie, to be allowed to increase its ore
production to 300,000 tpd from the present 160,000 tpd.

Permits

The company has secured several necessary permits, including
the environmental impact analyst certificate and the principle
permit, for the expansion.

However, Kuntoro said his ministry would not issue the final
permit unless the company raised the royalties it was required to
pay to the government and prove its technical ability to protect
the environment from any adverse impacts from the expansion.

Freeport, which began operations in Irian Jaya in 1973, has
been under fire in the wake of the downfall of former president
Soeharto, who is a close friend of the company's chairman, James
"Jim Bob" Moffet.

Legislators, politicians and environmentalists criticized the
company for giving the government such a small share of the
profits it earned from the country's natural resources.

Data released by Freeport during the company's hearing with
the House of Representatives Commission V for industry, mining,
trade, manpower, cooperatives and the environment last year, show
the company paid the government an average of $270 million in
annual taxes and royalties between 1995 and 1997, including an
average of $35 million in royalties.

Under the present contract, the company was to pay 80 percent
of the royalties to the provincial administration and the
remaining 20 percent to the central government.

However, a governmental regulation obliged the mining company
to pay all royalties to the central government. The central
government was then to return 80 percent of the royalties to the
provincial administration. The provincial government, however,
only received a small part of the amount it was due.

According to Freeport, the Irian Jaya provincial
administration only began to directly receive its share of
royalties last year.

The province received an average of $27.6 million per year in
royalties from Freeport between 1995 and 1997. These royalties
accounted for about 70 percent of the province's domestic income.

With the increase in royalties, the province could receive
more than $100 million from Freeport.

Freeport Indonesia is 81.28 percent owned by Freeport McMoRan,
9.36 percent owned by the Indonesian government and the remaining
9.36 percent stake is held by PT Indocopper Investama Industries.

Indocopper is 49 percent owned by Freeport McMoRan, 50.48
percent owned by PT Nusamba Mineral Industries, a subsidiary of
the Nusamba group, and the remaining 0.52 percent stake is held
by the public. (jsk)