Jonan defends new regulation seen giving special treatment to Freeport

Minister of Energy and Mineral Resources Ignasius Jonan defended a new ministerial regulation which is seen by critics as providing special treatment for gold and copper giant PT Freeport Indonesia and is considered to be in breach of the mining law.

Jonan said that the new Ministerial Regulation No 28/2017, which is a revision of Ministerial Regulation No 5/2017, will allow PT Freeport, a local subsidiary of US-based Freeport McMoRan Inc, to resume export of copper concentrates during a transition period toward special mining business license (IUPK) from the current mining contract of work (COW) regime.

He added that PT Freeport is obliged to develop the required domestic smelter, and that the company must show significant progress in the project over the next six months. The government will revoke the company?s export permit if it fails to meet this target, he said.

The government introduced a new regulation in January of this year allowing miners to continue export of mineral concentrates including copper concentrates produced by firms such as PT Freeport but must meet certain conditions including converting their mining permit status from COW to IUPK, and showing commitment to develop domestic smelters. PT Freeport has previously agreed to convert into IUPK but demanded the new permit to have similar fiscal and legal terms including nailed-down tax principle, instead of based on prevailing regulations, as set out in the COW regime, to help ensure stability of its investment. The request has been turned down by the government, triggering the current dispute, which has prompted the company to threaten to go to international arbitration of no solution is reached.

As a result PT Freeport has not been able to resume export, forcing its contractors to lay off workers and is seen to affect the local economy in Papua where the company operates the giant Grasberg mine. Since February of this year, the government and PT Freeport have been engaged in rounds of negotiations to resolve their dispute.

To help resolve the short-term export issue, Jonan issued the new ministerial regulation, providing PT Freeport with a temporary IUPK to allow the company to resume export of copper concentrates, while maintaining its COW. The temporary IUPK will be valid only until October 10, by which time negotiations over long-term issues such as the requirement for the company to divest up to 51 percent shares to Indonesian investors and the issue of investment stability have been concluded. By October 10, PT Freeport will have to decide whether it will continue with the IUPK permit status, or maintain the current COW regime. If the company decides for the latter, it will not be able to continue export of copper concentrates.

Some critics including former law minister Yusril Ihza Mahendra have attacked the new policy saying that a temporary IUPK for PT Freeport, while maintaining the COW, is in breach of the 2009 Mining Law and is seen to be giving special treatment to PT Freeport.

Meanwhile, Director General of Mineral and Coal at the ministry Bambang Gatot Ariyono said that PT Feeport can apply for a new export recommendation letter with the ministry including revision of export quota following the introduction of the aforementioned new policy.

The ministry in February has issued an export recommendation letter for PT Freeport giving the company an export quota of 1.1 million tons for a one year period. The company, however, has yet to apply for the export permit with the Ministry of Trade amid dispute with the Ministry of Energy and Mineral Resources.

PT Freeport has yet to comment on the new policy. (*)