PT Freeport Indonesia (PTFI) has achieved 27% progress in developing its copper smelter in Gresik, East Java, as of March 2022. The smelter is Freeport’s second smelter in Gresik following the government’s requirement of special mining permit (IUPK) to enable the company operate in Indonesia until 2041.
PTFI Vice President Corporate Communication Riza Pratama said the company was constructing and erecting the piles, with between 700 and 800 mounds erected from 1,800 piles already in place. “We will inevitably continue with the project since we have spent approximately US$700 million,” he told Indonesia Business Post on May 10, 2022.
Freeport Indonesia is developing a smelter that can turn copper concentrate into cathodes with a capacity of 1.7 million tons per year. The smelter will cost about US$3 billion. The funds for the smelter would come from a loan and the company’s equity. Pratama said the firm raised overseas bonds for the project. Meanwhile, PT Chiyoda International Indonesia is the contractor for this project.
Pratama said the completion of the smelter construction would likely be in 2023. The company will do the commissioning tests in the second quarter of 2024. “It [the smelter] will not operate at 100 percent capacity immediately,” he said.
Progress at the smelter is a requirement for Freeport to receive export recommendations. The firm must pay export duties during the construction. Following the completion of the smelter and purification of all concentrates in Indonesia, the company will no longer have to pay export duties. “We are in contact with the government regarding the project,” Pratama said.
Freeport is obliged to build smelter
Ahmad Redi, a mining law expert of Jakarta-based Tarumanegara University, explained that developing a smelter was a statutory obligation of Freeport Indonesia. The coal and mining law and the decree of the Constitutional Court governed the company’s responsibility in building the smelter. The Court has ruled that based on Article 33 of the Constitution, the duty to process and refine mineral ores as regulated in the Coal and Mineral Mining Law articles 102, 103 and 170 is a constitutional necessity.
“Therefore, if Freeport builds its smelter, it will comply with the coal and mineral mining law and the Constitutional Court’s ruling,” he said.
Additionally, Freeport must commit to completing the construction of the smelter since the company has ample time to complete the project. According to the 2009 Mineral and Coal Mining Law and Freeport’s contract of work, Freeport should have built the smelter if considered economically feasible.
“The smelter should have been constructed in 2014, but it has not been yet,” Redi said, adding that the smelter is part of Indonesia’s state-owned mining holding company, MIND ID responsibility.
Redi explained that the government did not take a stern action against Freeport in the past regarding smelter construction for two reasons. According to the Freeport contract of works, Freeport develops a smelter if it believes economically viable. For the government, it was not easy to compel Freeport to construct a smelter following the working contract since Freeport could sue Indonesia in international arbitration.
However, in 2017, Freeport’s working contract was changed to IUPK. The permit gave the government bigger authority over Freeport so it could take a firm action against the company. The company is not required to reject the construction of the smelters as a result of the right. The government can revoke Freeport’s permit if it does not build the smelter.
