T

he Industry Ministry has signed a memorandum of understanding (MOU) with PT Freeport Indonesia, the local arm of US mining giant Freeport McMoran Copper & Gold Inc., to increase the use of locally produced goods and services as substitutes for the latter'€™s yearly overseas procurements.

According to outgoing Industry Minister MS Hidayat, the agreement will be part of the ministry'€™s attempt to continuously push the industry to use more local supplies.

'€œWe deem this MOU important to increasing the use of domestic products by companies operating here in the country,'€ Hidayat said in his opening remarks at the annual industry awards ceremony, in Jakarta on Wednesday.

Hidayat said Freeport had agreed that it would prioritize the use of local goods and services in procurements for the company as well as its subsidiaries. '€œWe hope this [agreement] can encourage other companies to follow [Freeport'€™s] suit,'€ Hidayat said.

He revealed that the government had criticized Freeport for relying heavily on imported goods and services in its operational procurements, which could reach up to Rp 15 trillion (US$1.28 billion) every year. '€œIn the past few months, we have complained about its tendency to procure supplies from overseas, despite being a company with large investments in the country,'€ he said.

Hidayat said that the agreement did not relate to a previous deal between Freeport and the Indonesian government that required Freeport to help build a $2.3 billion copper smelter.

Freeport obtained the Indonesian government'€™s approval to resume its exports, which had been halted since Jan. 12, following Indonesia'€™s ban on exports of key mineral ores.

Freeport president director Rozik Soetjipto, who was unavailable for comment on the MOU with the Industry Ministry, said earlier that the smelter was likely to be built in Gresik, East Java, which had better infrastructure than Papua, where the company operates.

Hidayat claimed that he had met with the Freeport CEO in the US to discuss the matter and that the mining firm had agreed to follow the government'€™s program to optimize the procurement of local goods and services.

'€œAfter discussing for three months, we'€™ve come to an agreement, in which the Industry Ministry will provide a shortlist of locally produced goods and services available,'€ Hidayat told reporters on the sidelines of the event.

The Golkar politician explained that the shortlist would consist of items that have obtained Indonesian National Standards (SNI) certification and had been put on the government'€™s priority list.

Hidayat said that the government would make exceptions for certain things or technologies that could not be produced locally. '€œEven then we will offer [Freeport] the option of [collaboration with local companies in a] joint venture to fulfill its needs,'€ he added.

Hidayat declined to elaborate on the exact percentage of local content to be recommended to Freeport.

According to articles 85-90 of the newly passed Law No. 3/2014 on industry, the government is mandated to increase the use of local content and Domestic Goods Usage Intensification (P3DN). The law also stipulates that the Industry Ministry is able to generate a list of items recommended for procurement and nominate a minimum level of local content.

'€œWe are currently intensively developing the import substitution sector. This must become our priority if we want to stop importing materials,'€ Hidayat asserted.