Local Figure: Renegotiation Of Freeport Contract Difficult

Timika, Papua, Aug 22 (ANTARA) - The Indonesian government`s plans to renegotiate PT Freeport`s working contract will be difficult to implement, according to Yosep Kilangin, a community figure of Mimika, Papua. He told ANTARA here on Tuesday that Freeport-McMoRan Copper & Gold Inc., as PT Freeport Indonesia`s principal company, was unlikely to go along with the �forced� plan. "It would be very difficult, because it is something that is being forced. Let�s see what happens, but the risk will be very high. Freeport authorities in America do not agree with the idea. They would take the case to international arbitrage," said Yosep, who was also the chairman of the Mimika district legislative assembly during 2004-09. He added that he received first-hand reports about Freeport`s stance on the Indonesian government`s expectations from Freeport-McMoRan leaders in the US. Yosep stated that Freeport-McMoRan would only agree to discuss issues outside the contract. "We can sit to discuss other things, but with regard to the contract and other principal issues, we had better wait until the expiration of the contract 21 years later," he said. Yosep is also the son of the late local freedom fighter, Mozes Kilangin. The second working contract for PT Freeport was signed by the late President Soeharto in 1991. Coordinating Minister for Economic Affairs Hatta Rajasa said recently in Jakarta that the renegotiation of PT Freeport`s working contract was under way. "It is going well. Freeport authorities have been very cooperative. They are willing to raise the royalty, release some of the land, build a smelter, and also increase the use of local raw materials. They are also ready to let regional governments and local companies play a bigger role, although studies have to be carried out on them first," he stated. Hatta said Freeport was also willing to divest its shares, although the figures had not been agreed upon yet. He added that the Indonesian government expected to hold up to 51 percent of the company`s shares. "I have also asked the company to conduct an initial public offering and they have agreed. They have also agreed to divest the company�s shares but not up to 51 percent yet. We certainly cannot force a change in the contract," Hatta explained. Regarding tax compensation, he said the government had �insisted on 35 percent�, adding that an agreement on tax would be reached later this year. Freeport-McMoRan Copper & Gold Inc. had earlier expressed its unwillingness to divest its shares. The US mining giant said the company was opposed to the 20 percent divestment requirement set by the new mining regulation of Indonesia. Freeport-McMoRan added that a working contract relating to the Grasberg gold mine in Indonesia was already in place ever since the contract was signed in 1991. "We are protected and bound by the contract, not the new mining law," Freeport-McMoran chief executive officer Richard Adkerson said recently. Regarding the divestment requirement for foreign mining companies in Indonesia, he pointed out that it was not a part of the agreement. "There is no obligation for us to sell (divest)," Adkerson added. He noted that Freeport was already paying more taxes than was required by the law in Indonesia. However, the Indonesian government now seeks to renegotiate its contract with Freeport Indonesia in the wake of the government`s plans to impose an export tax for mineral products such as copper and gold. "We will respond to the issue raised by the Indonesian government and we will cooperate," Adkerson said. At present, 90.64 percent share of PT Freeport Indonesia is owned by Freeport-McMoRan Copper & Gold Inc, with the rest of the 9.36 percent being held by the Indonesian government. The divestment obligation of PT Freeport Indonesia is as per Article 24 of the extended working contract signed in 1991. The article states that PT Freeport Indonesia has to divest its shares in two stages, with the first one, totalling 9.36 percent, to be completed within 10 years after 1991. During the second stage of divestment, starting 2011, the company has to sell 2 percent of its shares every year until the Indonesian government holds a 51 percent share. The first stage has already been implemented. In 1991, the company released 9.36 percent of its shares to the national party through PT Indocopper Investama. The second stage, however, was annulled after the issuance of the government regulation No. 20/1994, which allowed foreign ownership of up to 100 percent. Due to that the state continues to be a minority shareholder in the company.