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Freeport to get extension of export permit

The government will extend the export permit of PT Freeport Indonesia despite the copper and gold mining giant not having made significant progress in the construction of its new smelter plant in Gresik, East Java

Raras Cahyafitri (The Jakarta Post)
Jakarta
Thu, January 21, 2016

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Freeport to get extension of export permit

T

he government will extend the export permit of PT Freeport Indonesia despite the copper and gold mining giant not having made significant progress in the construction of its new smelter plant in Gresik, East Java.

Energy and Mineral Resources Minister Sudirman Said unveiled on Tuesday that Freeport'€™s six-month export permit, due to expire at the end of this month, would be extended on the condition that it agrees to pay a 5 percent export tax and sets aside a guarantee fund for the construction of the smelter plant.

Freeport will need to meet these two requirements because the construction of its smelter plant is behind target.

Despite the government'€™s ban on the export of raw mineral in 2014, a mining company is still allowed to export partly processed mineral products as long as it commits to the construction of smelting plants and agrees to pay export tax.

The export tax rate is linked to the progress of the construction of their smelting plant. An export tax of 7.5 percent is imposed on those companies whose disbursement for a smelting plant is at 0 to 7.5 percent of their total investment. A 5 percent export duty is applied to a company whose spending is at between 7.5 and 30 percent.

A company is exempt from export tax when smelter development spending has progressed past 30 percent.

In addition to 5 percent export tax, US miner Freeport McMoRan Inc is required to pay a certain amount in guarantee funds for its smelting plant, according to Sudirman.

Under the existing export permit, Freeport Indonesia pays 5 percent export tax and guarantee funds of US$20 million for the smelting plant.

The company is still working on site preparation, basic engineering and land clearing, according to its director, Clementino Lamury. '€œLate last year, we signed an engineering and procurement contract. We are expecting the groundbreaking to occur this July, followed by construction,'€ Clementino said.

According to Clementino, the smelter plant construction progress has reached 30 percent.

The sluggish progress of Freeport Indonesia'€™s smelter in Gresik East Java indicates that the company is not serious about building the smelter, said Dito Ganinduto, a member of House Representatives'€™ Commission VII overseeing energy.

'€œIf the company is not serious, there is no need for us to discuss the possibility of extending its contract,'€ Dito said during a hearing at the commission on Wednesday.

Freeport Indonesia holds a contract of work that is due for extension in 2021. The firm is reported to be seeking an early extension of its operation beyond this period. However, it is unlikely that it will be able to get an early extension because, according to the existing regulation, a request for extension can only be made two years before the expiry date.

Freeport'€™s president director Maroef Sjamsoeddin announced his resignation from the company on Monday, leaving the company with several unresolved issues, including its mandatory divestment plan and the soon to expire export permit.

Under current regulations, Freeport Indonesia is obliged to relinquish the balance of a 30 percent stake to either the government or national companies. Due to a previous divestment scheme, the government already holds a 9.36 percent share. The divestment of the remaining 20.64 percent will occur in two stages and 10.64 percent should be sold this year.

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