Freeport deal still pending payment
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After years of negotiations, Indonesia on Thursday finally signed agreements with United States-based mining giant Freeport-McMoRan Inc. (FCX) on the purchase of a majority stake in PT Freeport Indonesia (PTFI), which operates the Grasberg gold and copper mine in Papua. To conclude the deal, however, PT Indonesia Asahan Aluminium (Inalum), which represents the government in the talks, needs to settle the payment o fUS$ 3.85 billion to FCX and Rio`Tinto Group within six months.
“The divestment agreement is the last deal we will make. So, now it is a matter of administrative aspects, such as the settlement of the payment, documents and permits,” Inalum president director Budi Gunadi Sadikin said on Thursday.
FCX CEO Richard Adkerson
Meanwhile, FCX CEO Richard Adkerson described the agreement as definitive and a significant and positive step. After the deal, Inalum will control 51.23 percent of PTFI - 10 percent of which will be allocated for regional administrations in Papua - and FCX will hold 48.77 percent.
Budi Gunadi Sadikin
Budi added that one ofthe permit issues to be settled pertained. to a procedural report on PTFI’s divestment to China’s antitrust commission. He said that was the longest document to be prepared.
“[FCX] is an international company that needs to get permits from jurisdiction beyond the US,” he explained,
Inalum, which is Indonesia’s mining holding arm, will probably get the $385 billion from foreign-syndicated.bank loans. Budi said Inalum could transfer the
money as soon as November. Meanwhile, regarding the operations, Inalum is unlikely to immediately take controly despite its controlling stake. Adkerson said F CX had struck a deal with Inalum for the “way [PTFI] is governed”.
“It will be a partnership between FCX and Inalum. [...] We have an agreement that the operations Will continue, so that we’ll have stability of operations,” he
said, adding there would be no change in PTFI’s management for now.
Given the pending administrative issues in the Freeport deal, the government is set to issue another month-long temporary special mining permit (IUPK), as the current temporary IUPK expires at the end of September. PTFI is still operating under a Contract of Work (CoW) regime, which is due to end in 2021. Once the divestment is concluded, PTFI will operate under an IUPK that excludes the CoW benefit of operating for up to 50 years.
“We will issue the new IUPK after Inalum has concluded the payment,” Energy and Mineral Resources Minister Ignasius Jonan said during Thursday’s announcement ofthe deal. Hikmahanto Juwana, an international law expert from the University of Indonesia (UI), said the divestment deal was significant as
it was a binding agreement.
He added, however, that smelter construction and environmental restoration should remain the responsibility of FCX.
“[Smelter and environmental aspects] still have to be FCX’s responsibility, given the fact that the problems occurred before Inalum takes over,” Hikmahanto
said.
Aside from technical issues, Pelita Harapan University political analyst Emrus Sihombing believes Thursdays deal is likely to be used for the campaigns of both President Joko “Jokowi” Widodo and his contender, Prabowo Subianto, ahead of next year’s presidential election.
“[The Jokowi camp] will use it as productive [campaign material], while the opposition will likely criticize the funding issue,” he told The Jakarta Post. Freeport’s divestment is one of several cases of growing nationalism in the control of natural resources, another being the takeover of two giant oil and gas blocks, namely Rokan and Mahakam, by state-owned Pertamina.
Previously, ‘Institute for Development of Economics and Finance economist Abra PG Talattov criticized the governments decision to exclude state-owned banks as potential creditors to fund the purchase of the Freeport stake. Abra believes that decision amounts to a big loss of potential revenue for state-owned banks, as the average gross profit of PTFI, which Inalum has said publicly; is predicted to stand at $ 2 billion after 2022
Investor Daily, Page-9, Friday, Sept 28, 2018
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