Indonesia ready for Freeport tribunal

[kratos]

[h=1]Indonesia ready for Freeport tribunal[/h]

In its latest move to settle a dispute over mining policy, the government has challenged United States mining giant Freeport McMoran to go to an international arbitration tribunal for a fair result.

Recently, the Energy and Mineral Resources Ministry granted approval to PT Freeport Indonesia, the local subsidiary of the politically connected gold and copper miner, to convert its contract of work (CoW) into a special mining license (IUPK). In so doing, the government will require the company to divest 51 percent of its shares and build a smelter within five years. As compensation, the government will allow Freeport to continue exporting copper concentrate.

Energy and Mineral Resources Minister Ignasius Jonan asserted that resorting to arbitration was a legal right. However, he said the government did not expect to face Freeport at an international tribunal because such a move would negatively impact their partnership.
“Nevertheless, it is a better measure than exploiting employee layoffs as a means to push the government,†Jonan said in a statement on Saturday.
(Read also: Freeport Indonesia chief resigns as dispute over mining policy intensifies)

Jonan also called on Freeport, the country’s largest taxpayer and oldest foreign investor, not to be “allergic†to the idea of divesting 51 percent of its CoW and the newly issued Government Regulation No. 1/2017. So far, the company has divested 9.36 percent of its shares.
The government on Friday issued a recommendation for Freeport, allowing the shipment of 1.1 million tons of copper concentrate until Feb. 16, 2018. Freeport operates Grasberg mine, the world’s second-largest copper mine, in Timika, Papua.
The recommendation was given after a five-week halt on exports. The halt in operations caused a reduction in working times, affecting some 33,000 workers. The government and Freeport have divergent views on divestment and investment guarantees and this is causing friction between the two.
Freeport has consistently stated it will only agree to the contract conversion if it secures a guarantee from the government on the firm’s long-term investment stability, including fiscal and legal certainty, as already stipulated in the CoW signed in 1991.

“PT Freeport Indonesia will keep protecting its rights under the contract of work while cooperating with the government to achieve a substitute agreement that can satisfy both parties,†Freeport spokesperson Riza Pratama said via a text message to The Jakarta Post on Sunday. Riza, however, declined to comment on any possible future moves to take the case to arbitration.
(Read also: Government stands firm as Freeport threatens to cut production)

Apart from the divestment issue, the possibility of Freeport taking the case to arbitration has been stirred by a ruling from a tax court stipulating that the firm pay US$469 million in water taxes and penalties to the Papua provincial administration for the use of water between 2011 and 2015.
An internal shake-up that caused Chappy Hakim to resign from the post of president director on Saturday has also raised speculation over an arbitrationmediated dispute settlement.

Chappy, a retired air chief marshal who took the top position only three months ago, allegedly opposed the option of going to arbitration.
Kurtubi, a legislator from House of Representatives Commission VII overseeing energy and mining, said it would be better for Freeport to avoid a direct confrontation with the government through an arbitration process as the company had largely benefitted from the CoW system over the past 40 years.

“It [the government] has a big chance [of winning the dispute] because the [2009] Mining Law still acknowledges the CoW until it expires,†Kurtubi told the over the phone. “Freeport’s CoW will terminate in 2021 and after that there will be no CoWs in Indonesia, whoever the president will be. So Freeport’s demand to continue its current CoW is not realistic.â€
Hikmahanto Juwono, an expert in international law at the University of Indonesia, emphasized the government’s favorable position should it meet with Freeport at a tribunal.

“If this case is taken to arbitration, the government is in a strong position because it never discriminated against Freeport. It has provided the company with alternatives, including allowing an extension of the contract of work,†Hikmahanto said. The expert suggested that the government pay attention to the desire of the Indonesian people to gain a greater degree of control over Freeport.
Despite the sizeable costs of going to arbitration, the current government should proceed because breaching the law could end in impeachment, he added.

According to a government source, the damage claim proposed by Freeport could amount to at least $8.3 billion.

https://www.thejakartapost.com/news/2017/02/20/indonesia-ready-for-freeport-tribunal.html

Do you think Indonesia or Jokowi has all the things required to face this giant corporations ?

 

[Nimbus]

I'm more interested in who gets to buy the divested shares. A freeport with 51% of shares held by Indonesia may look better, but it's extremely important to know which Indonesian gets to hold it. If not handled carefully, this can create yet another oligarch or immensely strengthen an existing one, pushing Indonesia closer and closer to Russian style 'democracy'.

 

[kratos]

Well in short term, the divestment plan could saved APBN deficit....
In long term ? lets not look at the long term. If Jokowi is just as greed as the previous leaders, this circus wont come up in public

 

[Davita]

I read that if this problem isn't resolved within 4 months Freeport will go to international arbitration.
More news as they lay off workers....
http://jakartaglobe.id/business/freeport-hopes-for-compromise-amid-potential-massive-layoffs/

The RI gov't constantly advertises for foreign investment (FDI) and then shoots themselves in the foot by creating this kind of anti-foreign investment.

 

[kratos]

I dont think its an anti investment sentiment
The real issue is smelter. Freeport is supposed to build their own smelter since Indonesia is not allowing raw (ore) materials export anymore.
But they keep on manuevering ,trying to evade taxes etc. They don't perform on that (Tort)

But out of topic, I'm really curious about what Atlantis would comment in this issue....

 

[Davita]

I dont think its an anti investment sentiment
The real issue is smelter. Freeport is supposed to build their own smelter since Indonesia is not allowing raw (ore) materials export anymore.
But they keep on manuevering ,trying to evade taxes etc. They don't perform on that (Tort)

But out of topic, I'm really curious about what Atlantis would comment in this issue....

Really...my read is they don't want to have the majority (51%) of their Company controlled by the RI Gov't, which would give control to any Indonesian despot. Indonesian Gov't currently has nearly 10% of shares and I'm sure would be offered more....but not to the extent of losing control which is akin to the nationalization of Freeport, Indonesia.

 

[kratos]

Really...my read is they don't want to have the majority (51%) of their Company controlled by the RI Gov't, which would give control to any Indonesian despot. Indonesian Gov't currently has nearly 10% of shares and I'm sure would be offered more....but not to the extent of losing control which is akin to the nationalization of Freeport, Indonesia.

There are other options, switching the current expiring deal (KK/Kontrak Karya) with IUPK (Ijin Usaha Penambangan)

KK has flat deal no matter what ( Taxes fix percentage for certain years, immunity to any other law, etc).
IUPK would let Freeport keep their current status, Only now they dont have flat tax rate and must follow the current regulations made by the government

But I'm curious
If Freeport decided to bring the matter to international arbitration, could Indonesian govt ask Freeport to disclose their financial report in the court ?

 

[Davita]

I confess I don't know much about the case for Freeport...I just read recently about it so don't know any more than what the media publishes. I'll defer to others more knowledgeable.

 

[kratos]

I confess I don't know much about the case for Freeport...I just read recently about it so don't know any more than what the media publishes. I'll defer to others more knowledgeable.

Me too, I follow it lil bit,
but details ? hmm.....

Little insight about it, Indonesia ban the export raw materials since years ago. But rightafter legislative passed the law, they're giving mining companies ahead start to create smelter. We're talkin before 2009. Now in 2017, all mineral companies had their smelter but Freeport. Yet Freeport still request for more time extension. So thats an overall summary of whats going on

 

[Asun]

But I'm curious
If Freeport decided to bring the matter to international arbitration, could Indonesian govt ask Freeport to disclose their financial report in the court ?

Isn't Freeport Mcmorran a publicly traded company? Their financials should be publicly available at SEC's site.

 

[fastpitch17]

I seen a suggestion that they should remove all equipment and fill it in with C-4. Then go home.

 

[godmachine12]

Really...my read is they don't want to have the majority (51%) of their Company controlled by the RI Gov't, which would give control to any Indonesian despot. Indonesian Gov't currently has nearly 10% of shares and I'm sure would be offered more....but not to the extent of losing control which is akin to the nationalization of Freeport, Indonesia.

How much does it cost to build and maintain a smelter? Maybe someone with knowledge of mining could give us some input, but it can't be cheap. So the government gets their smelter built and paid for and then gets majority control of the company. Sounds like the same old ruse—on a much larger scale—if you ask me.

 

[kratos]

Freeport problem in graphic summary(Indonesia)

 

[fastpitch17]

That's quite interesting for an English speaking Forum. NOT Not even something that can be translated.

 

[Davita]

This problem, according to the media, is not wholly about a smelter.

President Widodo has chimed in and told them to solve the issue otherwise the Gov't will. Tough words. If this goes to arbitration there can be no winners.

The UN body to judge the arbitration is same UN that granted Papua to Indonesia after a referendum in 1969...they might be forced to review that decision if it comes up.
I cannot see Carl Icahn, who owns 7% of FCX, allowing his investment to drain without a fight.

from Jakpost today....."As tension between the government and United States-based mining giant Freeport-McMoRan (FCX) continues, President Joko “Jokowi” Widodo has made his first comment on the matter, indicating that he would take firm action if necessary."

 

[kratos]

That's quite interesting for an English speaking Forum. NOT Not even something that can be translated.

LOL,sorrymate,
I'll try my best to translate it according to the wording color

WHY NOT BUILDING SMELTER

[Yellow color]

1991- President Soeharto signed Freeport mining contract
Valid till 2021

2009 -
UU no 4/Minerals published
It stated that Contract Holder (KK) MUST BUILD Smelter
At least 5 years after the dated regulation

[White Color]
FreeportPromised to build Smelter and follow regulation

2014 (1)-
Due date of Smelter for KK Holder

SBY Government issued PP 1/ 2014 that
stated that Freeport could export the raw ore
concentrate without Smelting process

[White Color]
FREEPORT Still not completed the Smelter construction
( The arrow point down to 2016)

2015
Export permit extension
Still Smelter not completed

2016
Same as 2015

2017
Jokowi Government Issue PP 1/2017 stated that those KK Holder
who does not own Smelter, must switch their status from KK to IUPK

Additional info
KK( Kontrk Karya) is an exclusive agreement between Government and Company. It gives company lots of advantages of doing businesses such as imunity of rules / UU or Flat tax rate for certain years

IUPK (Ijin Usaha Pertambangan Khusus) Is a regular permit. Those who posses it must follow regular rules of doing business at Indonesia such as complying with the current tax regulations, Local/ State Regulations(PERDA/ PP ). No more Immunity
2021
Freeport contract expire

Hope thats clear enough

 

[godmachine12]

This problem, according to the media, is not wholly about a smelter.

President Widodo has chimed in and told them to solve the issue otherwise the Gov't will. Tough words. If this goes to arbitration there can be no winners.

Quite. If this goes into arbitration, the Indonesian government stands to lose the most—provided they were ruled against. Just because they don't want it to (go into arbitration that is), doesn't mean that it won't. That's not how the process works. It will be very interesting to see how this shakes out.