A Memorandum of Understanding (MoU) was signed on Friday between the central and local administrations that will lay the groundwork for the transfer of interests in one of the world’s biggest gold mines to local administrations.

The deal has confirmed the participation of the administrations of Papua province and Mimika regency, the location of Grasberg gold and copper mine managed by PT Freeport Indonesia (PTFI), in the future divestment of a majority stake owned by United States mining giant Freeport-McMoRan Inc. (FCX) in PTFI.

The central government was represented by the Finance Ministry, the Energy and Mineral Resources Ministry, the State-Owned Enterprises Ministry and state holding company for mining PT Inalum.

Finance Minister Sri Mulyani Indrawati said that under the MoU, the Papua and Mimika administrations would jointly own 10 percent of the 51 percent PTFI stake divested by FCX to Inalum.

Under the agreement, the Papua provincial administration will receive a three percent stake while the Mimika regency administration will own a seven percent stake after the divestment.

The remaining 41 percent of the divested stake would be owned by Inalum, said Inalum president director Budi Gunadi Sadikin.

Negotiations between the government, Inalum and FCX are still taking place.

“The portion of the stake was to accommodate the rights of the indigenous people, which are affected by PTFI’s [operation],” Sri Mulyani said.

Discussions over the transaction mechanism between Inalum and the local administrations were underway, she said, adding that the allotment of the divested FCX’s shares would be conducted using a “corporate mechanism” to ensure that it would not burden the state budget (APBN) and regional budget (APBD).

Inalum’s Budi said the signing of the MoU was an important step to resolve the ownership issues between national and local governments, while adding that the agreement would also guarantee that the Papua and Mimika administrations would work only with Inalum in the negotiation with PTFI.

Further details of the stakes’ transaction mechanism between Inalum, as a representative to the central government, and the local administrations were still being negotiated, said Budi.

Papua Governor Lukas Enembe welcomed the agreement, which he described as historic.

“Since Freeport has operated in Papua, it is only now that the government has given its trust to the people of Papua,” he said.

He also reassured that the local governments’ stakes would not be sold to other parties.

“The 10 percent share is owned by the administrations, and is not in the hands of individuals, groups or businesses, so that Indonesia can wholly own the majority shares,” he said.

Lukas added that his administration had already established a company called PT Papua Divestasi Mandiri, which would act as representative of the local administrations in the negotiation.

Indonesia and Papua have long pushed for greater control over PTFI, and the new ownership structure will ease tensions over the proceeds from Grasberg, which has been under the full control of FCX for half a century.

At present, FCX controls 90.64 percent of PTFI, while 9.36 percent is owned by the Indonesian government.

Following PTFI’s contract extension last year to continue exploiting the world’s biggest integrated gold and copper mine in Papua, the government has demanded FCX divest its stakes in PTFI so that local entities can own at least 51 percent of PTFI.

The government has expressed hope to finalize the divestment process with FCX by June.

PTFI, Indonesia’s oldest foreign investor and biggest taxpayer, operates the mine in Indonesia’s most remote and poorest province, generating 98 percent of FCX’s consolidated gold sales and 19 percent of the company’s copper supply worth more than $2.7 billion in 2015.

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