T

he Energy and Mineral Resources Ministry'€™s mineral and coal office has insisted that PT Freeport Indonesia has failed to make required progress on its smelter development, despite the company'€™s claim that the project is 30 percent complete.

The mineral director at the ministry, Mohammad Hidayat, said Freeport Indonesia'€™s smelter project in Gresik, East Java, was lagging behind the '€œS curve'€, a common measure for work progress.

'€œSix months ago, progress was [on schedule], therefore we granted the company a recommendation for export permit. Looking at the site, there is [no further progress] visible now,'€ Hidayat said on Thursday.

Freeport Indonesia, a subsidiary of US giant Freeport McMoRan Inc, is seeking a recommendation from the mineral and coal directorate general for an extension of its export permit for copper concentrate. The recommendation is necessary for applying for the permit from the Trade Ministry and, more importantly, to avoid halting its operations in Papua.

The existing permit, an extension from a previous one, is set to expire on Jan. 28.

Energy and Mineral Resources Minister Sudirman Said said on Wednesday the government would give Freeport a six-month extension, with 5 percent export tax and a mandatory deposit as a guarantee that it would continue its smelter project.

Mineral and coal directorate general Bambang Gatot Ariyono said on Thursday that the deposit was US$530 million. That is around 25 percent of the company'€™s total planned investment of $2.1 billion for the new Gresik smelter.

Freeport Indonesia director Clementino Lamury said earlier the company'€™s Gresik smelter development has progressed 30 percent. The percentage was calculated based on the company'€™s spending on the smelter project, which mostly consisted of engineering and procurement contracts signed late last year worth around $700 million.

'€œWe are expecting to hold a groundbreaking ceremony this July, followed by construction,'€ Clementino said.

Given the claimed progress, Freeport Indonesia was also seeking a lower export tax than the current 5 percent. Under a Finance Ministry regulation, a gradually increasing export tax, from 0 percent to 7.5 percent, will be applied to semi-finished minerals for companies that continue exporting.

'€œThe company claimed the progress based on committed payments. It shouldn'€™t be that way. A deal on engineering and procurement is nothing unless there is real spending disbursed, for example, the purchase of equipment or site preparation. We measure progress by real disbursement,'€ Hidayat said.

Smelter development is mandatory for all mining firms as a consequence of the 2009 Mining Law that requires all minerals to be processed and refined before export. The law allowed a five-year period for the completion of such facilities, ending in 2014, so that companies had time to prepare for the full ban on raw minerals exports.

However, most mining firms have been reluctant to work on processing facilities, citing the massive investment needed. The 2014 deadline passed with no significant smelter developments in sight. As consequence, the government relaxed its policy and allowed companies to continue exporting semi-finished minerals, such as copper concentrate, until 2017, as long as they were making progress on smelter development.