Is Mining Giant Freeport stepping into an INDONESIAN political minefield?

The planned divestment by Freeport of 20 percent of its shares and how these shares are to be distributed among Indonesian elites were also discussed.

In the transcript of the tape, the names of the President Joko “Jokowi” Widodo and the Vice President Jusuf Kalla were mentioned as being among the would-be beneficiaries.

 

The subsidiary of the US-based Freeport McMoran Gold and Copper Inc. owns the right to mine one of the biggest gold and copper deposits in the world located in the Grasberg Mountain in Papua, yet after nearly half a century of Freeport operations, Papua remains the poorest and the most backward province in Indonesia.

Freeport has been a thorn in the pride and the consciousness of many Indonesians. It has been a source of resentment among Indonesian elites because after 70 years of independence, the country is not in control of its richest mineral resources.

Freeport operations have created constant questions among Indonesians about whether the government’s management of its natural resources has been in line with the spirit of the Constitution — providing utmost prosperity to the Indonesian people through its control over natural resources. Every talk and discussion about Freeport reveals how this giant mining company is perceived and misperceived by Indonesian elites. It is hard to have a clear and objective point of view regarding Freeport. Talk about Freeport is always accompanied with political undertones, prejudice and conspiracy theories.

Now Freeport is in the spotlight again after revelations that its CEO, Maroef Sjamsoeddin, the former deputy chief of the National Intelligence Agency, met with House of Representatives Speaker Setya Novanto, allegedly to discuss Freeport’s request to get a new license for its operation.

Novanto’s action is considered to be unethical and the matter has been reported to the House ethics council by Energy and Mineral Resources Minister Sudirman Said. According to the law, Freeport can only submit its request for a new mining license in 2019, two years before its current contract of works expires in 2021. As the time would be too short, this would create problems for Freeport’s long-term investment plan that includes a US$17 billion plan to develop new underground pits.

The planned divestment by Freeport of 20 percent of its shares and how these shares are to be distributed among Indonesian elites were also discussed.

In the transcript of the tape, the names of the President Joko “Jokowi” Widodo and the Vice President Jusuf Kalla were mentioned as being among the would-be beneficiaries.

Freeport is keen to get the green light from the government quickly to continue its operation beyond 2021. For Freeport the stakes are high. One estimate showed that its gold production in Papua accounts for 70 percent of its gold production worldwide. Understandably, Freeport would fight at any cost, would use any available venues to get the license as early as possible. Maroef might think the request of Setya to have a meeting in which he offered his help was such a venue. Although Maroef was likely a passive participant in the meeting, the public perceived the meeting as lobbying by Freeport to solicit support for their efforts to get a new mining license. The exposure of the meeting could pose a risk for Freeport as it could be considered as being complicit with the unethical conduct of Setya. Setya has been named in several corruption cases in the past, although he always escaped criminal prosecution. Mohammad Reza Khalid, who is a powerful oil trader who controls the oil import monopoly of Pertamina through its subsidiary, Singapore-based Petral, which has been recently disbanded by the government, was also present in the meeting.

Understandably, Freeport would fight at any cost, would use any available venues to get the license as early as possible.Both men are cunning businessmen who could quickly spot and seize business opportunities.The episode reinforced the belief in the public that during all these times mining licenses were issued through a corrupt system involving state officials, rent seekers and brokers and company owners. The resulting uproar from the meeting between the Freeport CEO and Setya would increase the pressure on the government to be more transparent and accountable in issuing mining licenses. It has also pushed Freeport into a difficult situation.Although the decision to issue mining licenses is a discretionary power of the President, Jokowi should also consider the public sentiment about Freeport before he decides. If past actions were any guide, Jokowi’s decision on critical issues closely aligns with the direction of public sentiments. He also would listen to his ministers and his close advisers. But two of his coordinating ministers, Coordinating Political, Legal and Security Affairs Minister Luhut Pandjaitan and Coordinating Maritime Affairs Minister Rizal Ramli, have been highly critical about issuing a new license to Freeport. The time when the government will decide Freeport’s fate in 2019 will be the election year. During the campaigns preceding the general election all hell could break loose, especially when it relates to the sovereignty of the state over natural resources. Would President Jokowi have the willpower to swim against the political currents? Between 1991 and 2014 government revenues from Freeport amounted to $15.8 billion, most of which (81 percent) was in the form of the company’s income taxes, while royalties and dividends were 10.1 percent and 8.9 respectively. However, total revenues from Freeport have dropped significantly from $1.9 billion in 2010 to only $500 million in 2014 because of the fall of commodity prices. President Jokowi might use the magnitude of these revenues as it relates to the size of the government budget as one of the considerations to determine the worthiness of issuing a new mining license to Freeport, but because nationalist sentiment will be at its highest pitch at the time of the election, rational analysis on the costs and benefits of the continuing presence of Freeport in Indonesia will be lost. As Freeport is facing its most critical time in its history in Indonesia, it is also facing an adverse political situation. The worst-case scenario for Freeport would be the dimming of its prospects to get a new mining license and that for Freeport getting the new license is not a foregone conclusion.

 The writer Winarno Zain, is a commissioner at a publicly listed oil and gas service company.