PT Freeport raises royalties on its own, says Kuntoro

PT Freeport raises royalties on its own, says Kuntoro

JAKARTA (JP): Minister of Mines and Energy Kuntoro
Mangkusubroto has denied the allegation that the government has
forced the mining company PT Freeport Indonesia to raise
royalties payable to the government in return for a license for
its expansion plan.

Kuntoro said on Friday the royalty increases "were voluntarily
proposed by Freeport without any pressure from the government".

He said Freeport proposed to increase royalties on the basis
of the provision in its contract of work (COW) signed on Dec. 30,
1991 stipulating that it would "always thoroughly pay attention
to the aspirations and the welfare of the people of the Republic
of Indonesia and the nation's development."

"In reference to the provision, the company has proposed the
royalty increases and the government has accepted it," Kuntoro
said in a statement.

Freeport, a subsidiary of giant U.S. mining company Freeport
McMoRan Copper & Gold, has agreed to double royalties from its
copper mine and triple royalties from its gold and silver mine in
return for increased ore output at its huge copper and gold mine
in Grasberg, Irian Jaya to 300,000 tons per day (tpd) of ore from
160,000 tpd at present.

The new royalty scheme will be backdated to Jan. 1, 1999 and
effective if ore production at the Grasberg site exceeds 200,000
tpd.

The Grasberg mine is believed to contain one of the world's
largest copper and gold reserves.

Under the COW, Freeport has to deliver to the government
between 1.5 percent and 3.5 percent of its copper sales and 1
percent of its gold and silver sales in royalties.

Many analysts have praised the new royalty scheme which they
say is the world's most productive.

Kuntoro said the government and Freeport have also reached
agreements on several mining practices including slope stability
and excavation of marginal reserves.

"The negotiations on the expansion plan have reached the final
stage... The last subject under discussion concerns the
management of environmental impact, particularly regarding the
waste management," Kuntoro said.

Smelter

Kuntoro also said the director general of mining at the
ministry would study the contracts on copper concentrate sales by
Freeport to smelters in Japan and Spain to check out allegations
that it has underpaid royalties to the government.

"The study is expected to give definite answers as to whether
there are irregularities in the contract, compared to standard
contracts in international mineral trading," Kuntoro said.

He said the directorate general of mining office would carry
out the study together with the School of Mines at Bandung
Institute of Technology.

Kuntoro said the move was being made in response to the
allegation by the State Finance Comptroller (BPKP) about losses
to the state because Freeport had not submitted reports on the
sales of iron, sulfur, and other metal residues in the copper
concentrate processed in both smelters.

The smelter in Japan is owned by Mitsubishi and Sumitomo and
the other in Spain belongs to Atlantic Copper Inc.

Copper smelters are known to produce sulfuric acid -- a waste
raw material that can be used for the making of fertilizers. The
sulfuric acid contains minerals other than copper, gold and
silver.

According to BPKP, the sulfuric acid produced by both smelters
was the property of Freeport as the concentrate producer.
However, the government had thus far not received shares in the
sales of the sulfuric acid.

"BPKP presupposed the sulfuric acid was the right of Freeport
as the concentrate producer. In fact, it may be the right of the
smelter owners, depending on the contract between the concentrate
producer and smelter owners," Rachman said.

"As such, the government needs to study the contract between
Freeport and both smelters to ascertain who has the right to the
sulfuric acid," he added. (jsk)