Government Secures Freeport Operation

22 December 2018

JAKARTA, KOMPAS – The government has secured PT Freeport Indonesia’s operation to 2041. Provision of such guarantee was part of the Freeport shares divestment process carried out by PT Indonesia Asahan Aluminium (Persero). Inalum paid for part of Freeport shares with 3.85 billion US dollars, or nearly Rp 60 trillion. 

The 3.85 billion US dollars price was paid to PT Freeport Indonesia’s parent, Freeport McMoran Inc (FCX) in Jakarta on Friday  (21/12/2018).

Through the divestment, the stake owned by Indonesia as represented by PT Indonesia Asahan Aluminium (Inalum) increased from 9.36 percent to 51.23 percent. The Papua Provincial Government and the Mimika Regency Government will get 10 percent. This leaves FCX with a 48.77 percent stake in Freeport Indonesia.

Payment for the shares divested simultaneously marked  the change in Freeport’s operating status from holder of a contract of work to that of an IUPK special mining operation permit. Issuance of the IUPK by the Minister of Energy and Mineral Resources (ESDM) guarantees extension of Freeport’s operation to 2041, as well as fiscal and regulatory stability. Under the contract of work, Freeport’s operation in Mimika ends in 2021, with option to extend two times for 10 years each time. 

"The IUPK stipulates the contract of work becomes void as of issuance of the IUPK. The period counted to 2021 will be counted as the remainder of the current contract period, after which extension to 2031 immediately takes effect. Application  for extension may be submitted five years before the permit ends,” ESDM Ministry Director general of Minerals and Coal  Bambang Gatot Ariyono informed during a press conference at the ESDM Ministry.

 PT Inalum President Director Budi Gunadi Sadikin, who attended the press conference announced the new executive structure at PT Freeport Indonesia. Tony Wenas who was initially Executive Vice President of PT Freeport Indonesia has been appointed president director. FCX President Director Richard Adkerson holds the position of president commissioner, and former Head of SKK Migas (Special Task Force for Upstream Oil and Gas Business Activities) Amien Sunaryadi was appointed deputy president commissioner. 

Richard admitted the Freeport shares divestment process was lengthy and      complicated. However, he said, more importantly he has secured investment certainty in the form of operation extension to 2041, and fiscal and regulatory stability. Guarantee provided by the government is expected to positively impact Freeport’s operation in   Indonesia.

"As the operation is now run jointly with the Indonesian government through Inalum, Indonesia will receive greater financial benefits (under the IUPK) than it had under the contract  of work,” Richard said. 

On the matter of smelter development that is part of the divestment agreement, Richard said, Freeport remains committed to completing development in the next five years. In the new smelter, Inalum will obtain export rights to products of copper concentrate  refined in the new smelter. Freeport is planning to invest 2.3 billion US dollars in the smelter development.  

Benefits for Indonesia

Divestment of shares by holders of an IUPK is provided in Government Regulation Number 1 of 2017 concerning Minerals and Coal Mining Business Activity. Under this regulation, foreign mining companies are required to relinquish at least 51 percent shares to an Indonesian participant after the 10th year in production. Under its contract of work, Freeport’s operation in Papua end in 2021.

In Merdeka Palace, Jakarta, President Joko Widodo described the transfer of Freeport shares to Inalum as a historic moment. Ownership of the majority stake will be used to bring about the greatest prosperity for the people. “Thereafter, revenue from taxes or non-taxes, royalty will be greater and better. I believe this is what we have been waiting for,” the President said. 

The President added, matters relating to the environment and the smelter have been resolved and agreed, meaning with all cleared up, all that is left is to go to work.  

Finance Minister Sri Mulyani Indrawati said increased state revenue obtained under the divestment agreement is grounded on Law Number 4 of 2009 concerning Minerals and Coal Mining. Revenue sources include Income Tax, VAT, Water and Ground Tax, and royalty. The rate percentage of each component is fixed, in order to provide investment stability. 

"This provides certitude for the state to obtain bigger revenue, and Freeport obtains certitude over the obligations it must pay to us,” Sri Mulyani said.

Freeport, which commenced production in 1973, operates in remote mountains in Timika, Mimika Regency, Papua. Freeport’s production operation area covers an area of 10,000 hectares, with a total supporting area of 202,850 hectares. Freeport’s mine produces the minerals copper, gold and silver. 

Throughout 2017, Freeport mined 140,445 tons of ore per day with a copper content of 1.01 percent per ton, gold grade of 1.15 grams per ton, and silver grade of 4.32 grams per ton. At one point in 2009, Freeport produced up to 238,000 tons per day. In 2017, Freeport paid 756 million US dollars in  taxes, royalty, dividend and other costs.  

PT Freeport Indonesia (PTFl)


·         Inalum has paid 3.85 billion US dollars to Freeport McMoran Inc (FCX) and Rio Tinto for purchase of part of FCX shares and Rio Tinto’s participating interest in PT Fl, thereby increasing Inalum’s ownership from 9.36% to 51.23%.  


·         The 51.23% stake will subsequently consist of 41.23% for Inalum and 10% for the Papua provincial government and the Mimika regency government. 


The stake for Papua will be managed by a special purpose company, PT Indonesia Papua Metal Mineral, in which Inalum will own 60% shares, and a Papua BUMD (region owned company), 40%. 

Kompas  Saturday, 22 December 2018

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