Minister issues regulation to allow PT Freeport resumes export

Minister of Energy and Mineral Resources Ignasius Jonan has issued a new ministerial regulation as a legal basis for issuing a temporary special mining business license (or IUPK) for gold and copper giant PT Freeport Indonesia so that the company can resume export of copper concentrates.

Signed on March 31, the new Ministerial Regulation No 28/2017, which revises earlier Ministerial Regulation No 5/2017, essentially says that the issuance of the temporary IUPK for PT Freeport does not automatically ends the company?s current mining contract of work (or COW).

Ministry top officials declined to comment on the new regulation, which only benefits PT Freeport and is seen by some observers to be in breach of the 2009 Mining Law. PT Freeport could not be immediately reached for comments.

Secretary General of the ministry Teguh Pamudji said on April 4 that the ministry has decided to issue a temporary IUPK for PT Freeport, a local subsidiary of US-based Freeport McMoRan Inc, to allow the company resumes export of copper concentrates.

He said that the temporary IUPK is a short-term solution to help resolve dispute between the government and the company which has affected the latter?s mining operations in Papua and the local economy. He added that the temporary IUPK is valid only until October 10, 2017, by which time negotiations are expected to be concluded, and PT Freeport will decide whether to continue with the IUPK permit status permanently or maintain its COW status. If the company decides for the latter, it would not be allowed to export copper concentrates, Minister Jonan has said.

Teguh explained that while PT Freeport operates under the temporary IUPK permit status, the government will still honor the company?s existing mining contract of work (COW), meaning that legal and fiscal terms set under the COW regime remain in place.

The government introduced in January of this year a new regulation (replacing a 2014 regulation which banned export of mineral concentrates including copper concentrates produced by miners such as PT Freeport starting January 11 of this year) allowing miners to continue export of the concentrates for another five years but under certain conditions including converting their mining permit status form COW into IUPK, commitment to develop domestic smelter, and pay export duty.

While PT Freeport has agreed to convert into IUPK, the company demanded the IUPK to contain similar fiscal and legal terms as set in the COW including a nailed-down tax system instead of tax system based on prevailing regulations, to help ensure its investment stability. The request has been turned down by the government, thus triggering dispute between the two. PT Freeport?s parent, US-based Freeport McMoRan Inc, has previously threatened to go to international arbitration if no mutual agreement can be reached within six months from February.

PT Freeport, which operates the giant Grasberg mine in Papua Province, has been forced to partially suspend production activities since February as the company could no longer export copper concentrates due to the lingering dispute with the government, causing contractors to lay off their workers.

PT Freeport has been given a quota to export 1.11 million tons of copper concentrates until February 18, 2018. PT Freeport will have to apply for export permit from the Ministry of Trade after obtaining the export recommendation letter.

After shorting out the short-term export issue, the government and PT Freeport are currently engaged in negotiations over long-term issues such as investment stability issue requested by the company, extension of operation, mandatory divestment and smelter development are expected to start next week. (*)