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)