Despite the fact that the Indonesian government has acquired 51% of the gold and copper mining company PT Freeport Indonesia (PTFI), the control of the operation and the management of the company is still dominated by US shareholder Freeport McMoran.
Indonesia, through its state owned company Inalum, acquired 51% of Freeport Indonesia shares for US$3.85 billion in 2018, a deal that gave an extension licence for PTFI to operate until 2041.
PTFI composition of its Board of Directors
PTFI Spokesman Riza Pratama said that there were currently two directors of the company namely Jenpino Ngabdi and Claus Wamafma who represent Indonesia’s state-owned mining holding company MIND ID. Meanwhile, Clayton “Tony” Allen Wenas, Clementino Lamury, Mark Jerome Jhonson, and Robert Charles Schroeder represent Freeport McMoran. “Four of the six directors represent McMoran,” he said.
“The Indonesian government and MIND ID are currently relying on Freeport McMoran to manage the operation of the company,” Riza said. In the future, if MIND ID plans to take more control over PTFI or wants to fill more senior executive positions within the company, the holding company should discuss it internally first.
Freeport Worker Union spokesman Virgo Solossa believed that Indonesia just wanted to secure 51% of PTFI profits from its 51% share in the company. MIND ID and the Papua provincial administration have no intention to be involved in the mining company’s operation. “As of now, Freeport McMoran is the one who appoints the operational division personnel employees,” he said.
Beside controlling the operation, Freeport McMoran is still maintaining and managing the financial aspect. MIND ID only holds and manages the administrative matters and government relations and monitors financial elements. But the Indonesian government, through MIND ID, gets the benefit of profits, by handling government relations and administration.
Solossa said although Indonesia has secured 51% of the PTFI shares, the fate of Freeport workers have not improved. Most of the workers’ expectations and demands have not been realised. The situation was similar before Indonesia took over 51% of Freeport Indonesia. As a Papuan native, Solossa said he was satisfied with the appointment of one Papuan in the Freeport’s director position. In the future, he hopes to see more Papuans on the company’s board of directors.
However, Dany Amrul Ichdan, institutional relations director of MIND ID, said that to date, there has been no information regarding the holding company’s assuming increased control and requiring more senior executive positions within PTFI. “I am not aware of that, nor have I received information about that,” he said.
MIND ID’s lack of competencies and its leaders reputation controversy
Ferdy Hasiman, a mining expert in the Alpha Research Database, was sceptical of MIND ID’s ability to effectively control and operate Freeport Indonesia. He argued that mining companies required sophisticated technology as well as highly skilled employees. As a result of the difficulty level of the Grasberg mine, Indonesia still needs Freeport McMoran to manage and control it. Furthermore, Grasberg is the world’s largest underground mine.
“The project requires world-class miners and sophisticated technology,” he said, adding that MIND ID – including its subsidiary of mining company PT ANTAM Tbk – does not have the experience and expertise in underground mining.
Furthermore, Hasiman recommends that Indonesia allow Freeport McMoran to manage PTFI.
Due to its reputation, Hasiman also does not trust the integrity of MIND ID’s incumbent directors. MIND ID CEO Hendi Prio Santoso, he cited, was implicated in several graft cases in 2016 while in charge of state-owned gas company PGN. “He had been appointed to the role by politicians,” Hasiman emphasised.
Other MIND ID’s subsidiaries, including Antam and PT Timah Tbk, were also tarnished from corrupt reputations. “Considering that many Indonesian politicians and politician-backed officials use state-owned enterprises as cash cows for political purposes, I recommend that Freeport McMoran handle the mine. They are professionals. We tend to shield ourselves behind nationalism jargon,” he said.
Needs of new mine experts to assist MIND ID
Fahmy Radhi, an economist at Yogyakarta-based Gadjah Mada University, regretted that the composition of Freeport Indonesia’s board of directors did not reflect Indonesia’s ownership in the company. As a majority shareholder of Freeport Indonesia, MIND ID only has two directors, compared to McMoran of four. In his opinion, the directors will be in favour of the interests of Freeport McMoran over Indonesia. He said ideally as a major shareholder, Indonesia should be represented by three to five persons in the six-member board of directors in Freeport Indonesia. These directors should prioritize the interest of MIND ID and Indonesia, instead of Freeport McMoran’s.
Since Freeport Indonesia’s management and production are still under the control of Freeport McMoran, MIND ID only has a monitoring role. Indonesia should control the company’s activities for the interest of the country, he added. “Including the smelter issue.”
“For instance, the decision to construct a copper smelter, which was part of a divestment agreement, the directors requested the government to delay its construction,” he said, adding that the request occurred while Freeport Indonesia was under the control of Freeport McMoran. He argued that Freeport has always tried to find reasons to avoid building copper smelters.
Also, 95% of the workers at Freeport Indonesia are Indonesian citizens, Radhi said the company should request for an appointment of production division director. The remaining 5% expatriates are experts specializing in mining-related technology.
However, in his opinion, Indonesia has no bargaining power to gain more control over PTFI, moreover to demand for a more senior executive position as Freeport McMoran has controlled the mining company for decades. Transferring the authority from Freeport McMoran to MIND ID will not be an easy process.
“It will take time, and MIND ID must have the courage to assume responsibility,” Radhi said, pointing out the holding company’s limited expertise in mining sectors. As a solution, he suggested that Indonesia hired consultants and experts from abroad who would work under the control of MIND ID. “If we continue to use the same experts from Freeport McMoran, we will be controlled forever by them,” he concluded.