Thursday, March 23, 2023

Government can sanction Freeport, Amman Mineral if they miss smelter construction deadline

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Gusty da Costa





Instead of terminating the copper concentrate exports of PT Freeport Indonesia (PTFI) and PT Amman Mineral Nusa Tenggara (AMNT), the government can impose sanction on the two giant gold and copper producers.

Former Director General of Coal And Minerals at the Ministry of Energy and Mineral Resources, Simon Sembiring, said the government could increase their export taxes if both mining giants failed to meet the deadline of their smelter construction.

 “If Freeport and Amman Mineral could not achieve the targeted completion of the smelter construction, the government could increase the tariff of the export tax. The government can’t just stop the export of copper concentrates in the middle of the significant progress of their smelter construction,” he told Indonesia Business Post on January 29, 2023.

Checking progress of smelter construction

Sembiring said that the government should have requested an explanation from both companies before imposing on the sanction. He added that the government should also check the progress of those companies’ smelter construction on the field.

“The government must determine the specific percentage of the actual progress [of smelter construction,” he said.

Later on, the government requires an official statement from both Freeport and Amman Mineral on the timeline of their smelter construction. Both companies should provide their schedule and deadline.

“If they said a specific schedule, the government should check whether it is true or not. In the meantime, the government can impose tax on copper concentrate export. The government can increase the tariff of the export tax as a sanction. There must be punishment,” Sembiring explained.

President Joko “Jokowi” Widodo announced the ban on raw mineral exports on January 10, 2023. The government already banned the export of nickel, followed by bauxite and then copper that would be effective by June 2023.

“We have been frightened by the nickel issue at the World Trade Organization (WTO) but we will continue to act accordingly. We will also stop exporting bauxite. By mid-2023, we will cease exports of copper. We need to be brave,” the president said on January 10, 2023. 

The Indonesia Mining Association’s Executive Director Djoko Widajatno said it was unlikely that Freeport could complete the construction of the smelter before June 2023. He added that Freeport’s smelter was 52.7% complete.

Conflicting regulations

The government is considering and studying two conflicting regulations on the planned ban on copper concentrate exports that will impact the operation of Freeport Indonesia, a subsidiary of US company Freeport-McMoRan Inc.

Acting Director General of Coal and Minerals of the energy ministry, Idris Sihite, said there were two regulations on the copper concentrates ban of Freeport Indonesia.

The first is Law No. 3/2020 stipulating that per June 2023, it is forbidden to export all minerals ores and concentrates. “It will be applied to all companies,” Sihite told the press on January 30, 2023.

The second is the 2018 energy and mineral resources ministerial decree on the extension of Freeport special mining permit. The decree’s appendix 8 stipulates that the government gives a chance for PT Freeport Indonesia to complete their refining facility by December 2023. “There is 8 months difference between the law and the decree,” said Sihite.

However, the issuance of the decree was before the enactment of Law No. 3/2020 on coal and minerals.

Compliance of existing regulations

“So we focus on the fairness and reiterate the compliance aspect. The government is studying and reviewing these regulations. Since this is a legal matter, it is not only the responsibility of the energy ministry but other stakeholders as well,” Sihite said, adding that the government has yet to decide which regulations it would comply but would consider both.

Sihite also said that the government has so far complied the existing regulations, unless there is a new one. At the same time, the government is also considering the significant progress of the smelters  and Freeport’s expenses for the smelter. “We will see how to synchronize the regulation and the facts.”

As for Amman Mineral, Sihite said that unless the company updated the planned construction of its smelter, it would be affected by Law No. 3/2020.

He said if the government insisted to impose the ban on the copper concentrate exports in June 2023, both companies would suffer from stockpiling whereas their operational cost would skyrocket.

Gusty da Costa






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