Satria Sambijantoro and Raras Cahyafitri, Jakarta – The outgoing administration will not ink an extension deal with PT Freeport Indonesia concerning its contract to mine the world largest gold site in Papua.
President Susilo Bambang Yudhoyono's spokesman for economic affairs Firmanzah told The Jakarta Post on Monday that the President was not drafting a memorandum of understanding (MoU) regulating crucial points in Freeport's contract amendment.
"The President is not formulating any MoU. It's just a statement from a director general at the Energy and Mineral Resources Ministry, which I have moved to clarify," Firmanzah said. "If there is any initiative from the ministry, it should be in the form of analysis, study and suggestion for the next government," he added.
The ministry and the newly appointed Coordinating Economic Minister Chairul Tanjung have repeatedly announced that they were working on an MoU that would be legally tied to the next government. One of the points in the MoU was a guarantee for Freeport to extend its operation after its contract expires in 2021.
The MoU was also expected to legally safeguard the local unit of US mining giant Freeport-McMoRan Copper & Gold Inc., against any changes demanded by the next administration. The presidential election is slated for July 9, the newly elected president is expected to be sworn in by the middle of October.
The 2009 Mining Law and a 2010 government regulation stipulated that a proposal for the extension of a mining license could only be fielded two years before it expired, or in the case of Freeport in 2019.
"The President has often said that in the final five months of his Cabinet, the government would not implement strategic decisions that had long-term implications." Firmanzah said.
"The extension of Freeport's contract-of-work until 2041 would be a strategic decision with long-term implications for Indonesia." Freeport Indonesia spokesperson Daisy Primayanti called for the swift resolution to the contract extension negotiations.
The company has already invested heavily in underground mining operations at Grasberg, in anticipation of depleting resources that would make it difficult to retract ore through open-pit operations, she said. "Given the serious long-term plan and the huge investment, it is fair that we, as a business entity, want certainty as soon as possible," she said.
For Freeport, which has operated the mine since the early 1970s, smooth renegotiation is not guaranteed by the next administration as the contract extension process will coincide with the legislative and presidential elections of 2019, where nationalistic sentiment will run high.
Freeport and Indonesia have been locked in a love-hate relationship since the company began to exploit the Grasberg mine, located in Mimika regency, Papua.
Freeport argued that it contributed heavily to the economy, while politicians accused it of exploiting resources, without giving enough back to Indonesia and its people.
Despite the mine's hefty contribution to Freeport's financial performance, every year the firm only gives a royalty of 1 percent to the government. The government has demanded that the royalty be increased to at least 5 percent, former coordinating economic minister Hatta Rajasa has said.
The Energy and Mineral Resources Ministry's director general for mineral and coal, R. Sukhyar, has said that Freeport had principally agreed to divest its ownership, creating leeway for the government to own up to a 30 percent stake in Freeport Indonesia.
[Hasyim Widhiarto also contributed to the story.]
Source: http://www.thejakartapost.com/news/2014/06/10/case-closed-freeport-sby-nixes-any-deal.html