Wednesday, July 29, 2015

Indonesian People Seeking a better deal with Mining Giant Freeport


PT Freeport Indonesia has seen and withstood the shifts in power in Indonesia ever since its arrival in Papua over four decades ago. At this point of time, it is of utmost importance that the relationship between the US-based gold and copper mining company and the Indonesian government evolves in direction that is favorable to both parties.

At its entrance to the country’s easternmost region upon the enactment of the 1967 Mining Law, Freeport brought in a new era of investment in Indonesia. The new form of foreign investment contracting, called the Contract of Work (CoW), was granted to Freeport for the Ertzberg gold and copper deposit in Papua.

Under this contract regime, negotiations can take place between the central government and the concession holders of the CoW.

As Indonesia shifted from authoritarian rule under Soeharto to its current democratic polity, decentralization followed and as such triggered the need to revise the 1967 Mining Law. The Investment Law in 2007 further dictates equal treatment for foreign and domestic investors, and in 2009 the Indonesian government issued Law No. 4/2009 on Mineral and Coal Mining in lieu of the 1967 Mining Law. During the shift from a contract regime to a licensing regime under the new mining law, further negotiations on the continuation of Freeport’s CoW have occurred and have raised questions on the continued presence of Freeport in Papua.

A win-win agreement is not impossible because overlapping interests define the relationship between the Indonesian government and Freeport at this point of time. Decades of delay in mining sector development prevented Indonesia from assuming the role of a value-added commodities producer in this sector. Freeport, with its long history in Papua’s mining operations serves as an existing mechanism to pave the way for further development in Indonesia’s mining sector. To welcome Freeport back means prolonged investment in the existing mining operations and infrastructure in the Grasberg mineral district. This continuation is also crucial for Freeport. The pressure is rather large for Freeport to cater to Indonesia’s demands. By 2014, 28 percent of copper reserves in the company’s mining portfolio resided in Grasberg. Grasberg also accounts for 16 percent and 93 percent of Freeport’s consolidated copper and gold production respectively in 2014.

Considering this overlapping interest, a proper legal mechanism to maintain Freeport’s operation in Indonesia is needed. As such, any negotiation should aim to achieve a transparent and fair agreement that will benefit both parties. Realizing Freeport’s commitment to build a smelter in Papua is a pivotal aspect in this new era of win-win relationships between Freeport and the Indonesian government. A smelting facility represents opportunity for Papua by gearing up the local economy as well as allowing for skills transfers. A smelting facility also presents the possibility for higher profits in the long run for both Indonesia and Freeport. With these entitled benefits, both parties should be steadfast and transparent in realizing their current commitments to each other.

The ongoing negotiation should serve as a medium for both parties to honor their past commitments and, more importantly, serve as a vehicle to tailor a future that accommodates a win-win solution for both parties.As it stands, Indonesia is transitioning to a country rooted in transparent constitutions, and one that is free of corruption. The map is certainly different to the one of four decades ago. Nevertheless, one aspect remains unchanged. Freeport will reap the ultimate benefit of a strong Indonesian economy and a developed Papua. It is now the time for both parties to seal the deal for the sake of a better future.

By Audrey Soedjito,economics researcher at the Centre for Strategic and International Studies (CSIS), Jakarta.


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