The issue of Freeport Indonesia must be managed and resolved properly. Assuming that both the Indonesian government and Freeport still have good intentions to work together, both parties must prioritize negotiations to find a middle ground amid their differing interests.
In my opinion, the room for negotiation is still wide open and the option of international arbitration that has recently emerged may be unnecessary.
In this case, Freeport must be able to look at the problems proportionally and understand the government’s good intentions, especially in terms of its continued operation in Indonesia. The government, in fact, has given strong signals that Freeport will be able to continue its operations, provided it adapts to existing regulations.
Change the Contract of Work
Article 17 of Energy and Mineral Resources Ministerial Regulation No. 5/2017 stipulates that holders of Contracts of Work (CoW) will still be able to sell concentrates abroad for the next five years if they fulfill several criteria, such as exchanging their CoW for a special mining license (IUPK) for production. This signifies that the government wants to ensure production continuation for CoW holders, including Freeport Indonesia. In Freeport’s case, this implicitly says that Freeport will be allowed to operate not only until 2021 – when its CoW expires (even if it has yet to build a smelter) – but also for 20 additional years afterwards, plus two contract extensions of 10 years each.
If Freeport changes its CoW to an IUPK right now (in 2017), it will be able to operate until 2037, plus a 20-year extension, or until 2057.
To continue
Therefore, Freeport’s presence in Indonesia as an IUPK holder could be even longer than as a CoW holder, which after a 20-year extension would expire in 2041. This means that the government has in fact given its assurance, which is quite strong in my opinion, that basically Freeport’s operation and investment in Indonesia will continue after 2021.
It is just that this assurance has not been given in the form of a CoW extension but as an IUPK license in 2017.
Here, Freeport must be able to think clearly and see the government’s good intentions. Basically, the government wants to assure its continued presence here but within a new legal framework, comprising Law No. 4/2009 on mineral and coal mining and all its implementing regulations, which the government must adhere to consistently.
Regarding its concern about uncertainties surrounding the possibility that the business contract extensions provided in the form of a license could theoretically be revoked at any time, Freeport must be able to look at this more proportionally.
Special license
It is impossible for the government to revoke a business license, let alone a special mining license, for unspecified reasons.
Regarding Freeport’s other objections, including the requirement to divest 51 percent of its shares and a taxation system that follows prevailing regulations instead of being nailed down throughout the contract’s duration, these regulations were made by the government after careful deliberation.
The requirement to divest up to 51 percent of shares is already part of the CoW, specifically Article 24 point 2 sub-point b. The requirement to adhere to prevailing regulations, including on taxation, is also included in the CoW, specifically in Article 23 point 2.
Thus, the government reaffirming these stipulations through Government Regulation (PP) No. 1/2017, which in this case is different from the previous regulation (PP No. 77/2014, which stipulated that foreign IUPK holders involved in underground mining could own up to 70 percent of shares), does not mean that the current administration is being inconsistent or creating investment uncertainty.
Nevertheless, this displays how the government has previously often excessively accommodated Freeport’s interests, such that it has resulted in changing its regulations.
Such is also the case with the requirement to build a smelter, which is often seen as a new burden and causing uncertainty due to the issuance of the Mineral and Coal Mining Law. In fact, the stipulation was already included in Freeport’s CoW, specifically in Article 10 points 4 and 5.
Fulfill commitment
In other words, apart from accommodating Freeport’s interests and upholding and adhering to prevailing regulations, the government is in fact merely reminding Freeport to fulfill its commitments as stipulated in the CoW.
Thus, in my opinion, the key to resolving the problem is in Freeport’s hands. Freeport’s willingness to resolve the differences through negotiation instead of arbitration (despite the presence of such an option) can show the extent of Freeport’s good intentions to invest in Indonesia.
The government has for so long understood Freeport’s wishes and has shown good intentions to help sustain the company’s investment. This is the time for Freeport to understand the Indonesian government’s conditions and good intentions.
Surely, this is also the time for Freeport to better understand and appreciate the wishes of all the Indonesian people as well.
PRI AGUNG RAKHMANTO
Lecturer at Trisakti University’s School of Earth and Energy Sciences, Founder of ReforMiner Institute
