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)