Freeport Wins 6-Month Export Extension

Freeport Wins 6-Month Export Extension

By Rangga Prakoso & Basten Gokkon

An aerial view shows the site of the Grasberg Mine, operated by US.-based Freeport-McMoRan, in Papua in this Nov. 4, 2010 file photo. (Reuters Photo/Muhammad Yamin)

Jakarta. Freeport Indonesia, the local unit of US mining giant Freeport-McMoRan, has secured an extension for its export permit, following its show of commitment to building a smelter in-country by signing/ a land lease in East Java last week.

While the permit extension is expected to benefit the company, analysts says Freeport Indonesia (PTFI) needs to show “true” commitment to building the smelter, having agreed to the plan when it last secured an export permit for copper concentrate in July 2014.

PTFI last week signed a memorandum of understanding with state-controlled fertilizer producer Petrokimia Gresik to lease land in Gresik, East Java, that will host the miner’s planned $2 billion smelter.

The move appeared to be sufficient to sway the government to extend the company’s export permit.

“A recommendation letter for export will be sent to the Trade/ Ministry,” R. Sukhyar, the director general for minerals and coal at the Energy and Mineral Resources Ministry, said on Friday.

That means that PTFI will be free to export copper concentrate from its Grasberg mine in Papua for the next/ six months, as the government reviews export permits every six months in the wake of the half-hearted implementation of mineral ore export ban that came into effect in January 2014.

PTFI was on the brink of losing its export permit after Sudirman Said, the energy minister, said last Tuesday that the company lacked the intention to build a smelter; PTFI had until Sunday to get its smelter development plan 60 percent complete.

According to Sukhyar, should PTFI manage to secure the land it needed for the smelter, the development would be considered to have reached 60 percent — despite construction not having begun.

PTFI did secure the land — on lease, not purchase, as the landowner, Petrokimia Gresik, said the 80-hectare parcel sought by the miner was “not for sale.”

Sukhyar said PTFI had placed $130,000 as a deposit/ in a local bank, or 2 percent of the annual lease price. According to Sukhyar, Freeport will rent the land for $8 per square meter per year.

The terms of the export permit extension allow PTFI to export up to 756,300 metric tons of copper concentrate during the six-month period, with a market/ value of about $1.56 billion at the current prices.

It also has to pay a 7.5 percent export duty, the same as before, as part of the government’s move to discourage miners from shipping concentrate and prompt them to process mineral commodities in-country instead.

Sukhyar said the government and PTFI had also signed an MOU on the renegotiated terms of the miner’s contract. He did not elaborate on the new contract, but said a new clause was agreed for insertion: a commitment from PTFI to develop a downstream business in Papua, where it mines copper and gold/.

Sukhyar said the downstream business did not have to mean a smelter, and could instead be a plant to produce copper alloy.

“Developing a smelter in Papua would take a long time, but if it’s a downstream industry for copper, that’s more promising,” he said.

But observers say the government is being short-changed despite PTFI’s show of commitment.

“The MOU signing that paves the way for export concentrates for Freeport carry risks for the government of Indonesia,” Ahmad Redi, a lecturer in environmental law at Jakarta’s Tarumanegara University, said in an op-ed in Investor Daily’s weekend edition.

“There have been several occasions when Freeport has failed to show good will to abide by Indonesian law,” he added.

Fabby Tumiwa, the executive director of energy think tank the Institute for Essential Service Reform, called on the government to be transparent in its dealings with PTFI.

“This is like we’re giving another chance for Freeport. And the context in this case is a negotiation,” he said.

“The government should be very clear here and communicate it through to the public so that there won’t be any suspicion among the public.”

He added that if PTFI failed to comply with its promise to build smelter, “then just terminate them.”

Still, Fabby conceded that PTFI’s continued presence in the country was important. The miner is the biggest single taxpayer in Indonesia. It has paid $15.2 billion in taxes, royalties, dividends and other direct payments, and $26.1 billion indirectly, from 1992 to 2013.

On Friday, Papua Governor Lukas Enembe lamented the company’s decision to set up its smelter in East Java instead of in Papua, saying that building the facility in the country’s easternmost region would help create jobs and empower the residents of Papua, the least-developed province in the archipelago.

ENDS

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