Freeport agrees to change CoW into mining license, may get early extension

Gold and copper giant PT Freeport Indonesia (PTFI) has agreed to change its current mining contract of work (CoW) into special mining license (IUPK), a move that would allow the company to get early renewal of license in operating the giant mine in Papua, Ministry of Energy and Mineral Resources said in a statement.

?This agreement will accelerate the finalization of government decision with regards to the continuity of PT Freeport Indonesia?s operation. The government is interested in ensuring legal certainty and healthy investment climate,? said Minister of Energy and Mineral Resources Sudirman Said in the statement issued Wednesday, a day after he met with PTFI President Director Maroef Syamsuddin and James Mofett, Chairman of Freeport McMoRan Copper & Gold, the parent of PTFI.

PTFI has been seeking for certainty over the future of its mining operation in Papua as it plans to start multi-billion dollar investment in 2017 for underground mine operation. The current regulation, however, stipulates that Freeport can only propose for extension of the CoW two years before its expiry in 2021. This means that the government can only make decision in 2019.

The change from KK to IUPK, however, gives the government leeway to make a decision sooner than 2019, the ministry said in the statement.

The change of the contract system to IUPK license system is part of the six key issues in the ongoing renegotiation talks between the government and PTFI for the amendment of the latter mining contract as stipulated by the 2009 Mining Law.

The ministry said that the two remaining key issues in the contract renegotiation talks are the fiscal aspect and legal certainty over the continuity of PTFI operation.

Kontan reported Thursday that the contract amendment process is expected to be concluded by the end of this year.

Meanwhile, while the change into IUPK will give the government greater power over PTFI as it could unilaterally revoke the company?s mining license without the risk of facing legal challenge (under the current CoW contract system, PTFI can go to arbitration court if the government makes such decision), experts warned the that giving extension to PTFI earlier than 2019 may put the government to be seen as breaching the existing law and regulation.

Editing by Reiner Simanjuntak