Minister of Investment/Head of Investment Coordinating Board Bahlil Lahadalia has maintained that the Indonesian government does not seek control of PT Freeport Indonesia operation during the negotiation for extension of the company’s special mining business permit after 2041.
“The most important thing in managing a corporation is revenue and not the operation. The best scenario is for Indonesia to manage the mining operation with the generated income is of the same the amount as when it is managed by a foreign company. However, if the option is Freeport be managed by Indonesian with the revenue is less than if it is managed by a foreigner, then the government will opt for the one with the best revenue,” Bahlil said on June 7, 2024.
“The state needs income, the regional government needs income and the people need jobs,” he added.
He said further that operational control is therefore not an issue in the negotiation with Freeport.
“The main issue is how much the state revenue will be. Technical issues will then be handled by the minister of state owned enterprises,” Bahlil said.
He quoted an audit report which stipulates currently 96 percent of Freeport employees are Indonesians, while all of Freeport’s operational activities have been audited in an open book.
“What else is being questioned. This is already very transparent,” the minister said.
In the past, Bahlil added, people were still suspicious that Freeport exported other metals besides copper.
“But with the construction of copper smelter in East Java, the company can’t lie anymore. There are 3 million tons of copper concentrates sent to East Java and the smelter will produce 60 tons of gold, and 400 thousand tons of copper cathode,” he said.
In the past, we could not explain this because the goods were just brought into tankers for export. Now with smelters at home, we can get to the details. There are no lies,” he added.
Government to announce extension
Bahlil said that he will announce the extension of Freeport special mining permit from 2041 to 2061 once he signs it. Currently, the Indonesian government negotiation team and Freeport McMoran nearly agree on the points of negotiation. Some of the points of agreement are the addition of 10 percent shares to the Indonesian government, the construction of a smelter in Papua, and the involvement of Papuan entrepreneurs.
The negotiation team consists of Minister of Investment /Head of Investment Coordinating Board and several technical ministries, such as the Minister of Energy and Mineral Resources, the Minister of Finance and the Minister of State Owned Enterprises.
The permit extension is needed because Freeport will achieve its peak of production in 2035. After 2035, the production will drop and it takes 10 to 15 years for the company to do underground exploration.
“If it is not immediately anticipated now, then in 2035, there will be no exploration and potential reserves will no longer be produced. If that is the case, who will be responsible?” he said.
President Joko Widodo has signed a government regulation that will allow PT Freeport Indonesia to submit for an extension of their Special Mining Permit (IUPK) after 2041.
The government issued on May 30, 2024 Government Regulation No. 25/2024, which is a revision to Government Regulation No. 96/2021 on the Implementation of Mineral and Coal Mining Activities.
The revised regulation has article 195A and 195B to complement the previous regulation. It opens up the opportunity for Freeport to apply for a license extension no later than one year before the end of the period of Production Operation activities.
PTFI signed the Contract of Work (CoW) in 1976 for 30 years and should have ended in 1997. Before the contract expired, PTFI discovered a bigger gold reserve at Grasberg mine. The company then submitted a second contract extension in 1991. The second contract has a clausal on divestment of 51 percent of the company’s shares to the Indonesian government.
After a long negotiation, in 2018, Freeport-McMoRan announced that it divested its ownership in PTFI so that Indonesia could own 51 percent shares of the company. In return, the CoW was replaced by a Special Mining Business License (IUPK) with the mining rights to 2041 and that Freeport will build a new smelter.
