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fter copper and gold mining giant Freeport Indonesia, the Energy and Mineral Resources Ministry is persuading other mining companies to also change their contracts of work ( CoWs ) into business licenses.

Minister Sudirman Said explained on Monday that all mining companies were expected to change their CoWs into special mining licenses (IUPKs) before the expiry of existing contracts.

'€œThus, we will no longer need to sign any memorandums of understanding [MoUs] in the renegotiation processes that have taken place for so long. We will check [the contracts] one by one and will decide what needs to be decided,'€ Sudirman said.

Last week, the ministry announced that it had reached a deal with Freeport Indonesia, a subsidiary of giant Freeport-McMoRan Inc., to change the company'€™s CoWs into an IUPK. Under an IUPK licensing system, the government will have greater powers compared to the previous system of contracts, in which companies could challenge the government in arbitration appeals in the event of a disagreement.

Changing from contracts to licenses is mandated by the 2009 Mining Law. However, experts have opposed the deal. They said that under the prevailing law, any contract signed in the past should be honored until its expiry, meaning that licenses can be applied only after the contract'€™s end date.

Freeport Indonesia'€™s CoW will expire in 2021 while other CoWs have different expiry dates. Under its plan, the ministry will change the company'€™s contract into an IUPK before its expiry date to give it certainty on its investment. Under an IUPK, a company will be able to secure 20-year operation licenses, which can be extended twice for subsequent terms of 10 years.

'€œFor anyone wanting to make a large investment, we must give a good response. Also, we have to give legal certainty and be sure that any changes do not break the law,'€ Sudirman said. Thus, they said, if the government wants to apply earlier changes, the law must be revised.

The previous government tried to renegotiate the existing contracts to ensure that they were in line with the new law, which stipulates higher royalty payments. However, renegotiations '€” which cover adjustments in royalties, divestment, reduction in mine size, operation continuity, downstream obligations and the usage of local goods and services '€” were mostly in stalemate. The only finished renegotiation and amendment of a CoW was reached with nickel miner PT Vale Indonesia.

Meanwhile, most other CoWs, consisting of 73 CoWs for coal (PKP2B) and 33 mineral CoWs or KK, remain in the MoU stage. The MoUs are aimed at locking contract holders into a commitment on the six points of renegotiation while they and the government are drafting contract amendments.

Freeport Indonesia president director Maroef Sjamsoeddin said earlier that his company expected to seal an engineering, procurement and construction contract for a copper smelter in Gresik, East Java, worth US$700 million before the end of the year. '€œThe contract will cover around a third of our investment in the smelter. This is our commitment to smelter development in the country,'€ Maroef said.

Apart from the smelter development, which will cost $2.3 million, the company is also planning to develop an underground mine in Papua with an estimated cost of over $15 billion. Due to that massive investment, the company needs to secure longer-term work permits.

However, critics have argued that Freeport Indonesia has held a contract for too long '€” since 1967 '€” given its contribution to the state and to local community is low.