Freeport facing uphill struggle to lobby government
Satria Sambijantoro and Raras Cahyafitri
The Jakarta Post
Richard C. Adkerson, the CEO and president of Freeport McMoRan Copper & Gold Inc., took time out of his busy schedule to fly thousands of miles to Indonesia to get first-hand information from the government following the introduction of the new export tax for mineral commodities, which he said 'was a surprise' for his company.
Adkerson, who was ranked 18th in the 2012 Forbes list of the highest paid CEOs in the US with an annual salary of US$39.5 million, visited four ministerial offices in Jakarta including the Office of the Coordinating Economic Minister, Industry Ministry, Finance Ministry and the Energy and Mineral Resources Ministry during his visit last week, in an attempt to seek an exemption from the export duty.
However, the lobbying by the 66-year-old Adkerson to gain further leniency on Indonesia's new mining export tax may be to no avail.
'At this point, there is no change in our stance,' Coordinating Economic Minister Hatta Rajasa told reporters late Thursday, when asked the result of his meeting with Adkerson.
'What I conveyed [to him] was that we wanted to fully implement the law and its related ministerial regulations,' Hatta went on. 'All the ministers share the same view.'
As part of the implementation of the new Mining Law, the government effectively banned the export of raw (unprocessed) ore such as bauxite and nickel among others, as of Jan. 12, in its efforts to promote the country's downstream industry in the mining sector.
However, President Susilo Bambang Yudhoyono agreed a special exemption for copper ore, allowing US-based mining giants Freeport and Newmont Mining Corp., which control 97 percent of total domestic copper production, to continue exporting semi-finished copper concentrate until the end of 2016.
However, the export duty imposed on the exports of semi-finished minerals as part of the relaxation of the export ban, has been deemed unrealistically high. The new tax regulation requires companies exporting mineral products to pay export taxes of between 20 and 25 percent. The export tax rate will gradually increase every six months until it reaches 60 percent in 2016.
Freeport was concerned about the 'new tax regulation that we did not anticipate and was a surprise to us', Adkerson said during a conference call with analysts last week, as quoted by international mining publication Mineweb. The 25 percent export tax for copper would be 'a very large amount that would be incremental' for tax payments that Freeport made to the Indonesian government, he added.
But, apparently none of the ministers bowed to the demands of Adkerson, who reportedly is now considering seeking international arbitration to settle the case, as the company argued that the new export tax might infringe on Freeport's contracts of work with the government.
Cabinet members may frequently disagree on many issues, especially on cases that are seen as politically sensitive, but not on Freeport.
Speaking after their separate meetings with Adkerson, Industry Minister MS Hidayat and Finance Minister Chatib Basri both showed no signs of giving leniency to the US mining giant, sharing Hatta's view.
'This is a fiscal instrument to force companies to build smelters ' it isn't a policy to increase tax revenue, not at all,' Chatib said.
'Our past experience over the last few years showed that there had been no pressure on mining firms to build smelters,' he stated. 'We could not afford to repeat the same mistakes again.'
Potential hurt in earnings from the Indonesian export tax has hurt the shares of Freeport (FCX), which has plunged 15 percent this month alone to touch $32.01 as of 10:45 p.m. on Thursday, Jakarta time. Freeport has warned that the export tax may hurt their business in Indonesia and could prompt massive layoffs, with thousands of Indonesians potentially losing their jobs.
In another development, Freeport said Thursday it still discussed the prospect of building more processing facilities in Indonesia in partnership with the government as the company tries to resolve a dispute that has halted exports from its largest mine.
'Freeport's commitment would involve a joint undertaking with the government of Indonesia in a public-private partnership,' the Phoenix-based company said in an emailed statement Thursday. Such an arrangement would also include the development of port facilities, power availability and 'other basic infrastructure together with government incentives to assure the viability of the project,' Freeport said.
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