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Jakarta Post

Freeport to get export permit despite failure to pay deposit

  • The Jakarta Post

    The Jakarta Post

Jakarta   /   Wed, February 10, 2016   /  05:56 pm

PT Freeport Indonesia has received a recommendation from the Energy and Mineral Resources Ministry for the extension of its export permit although the gold and copper mining giant has yet to pay a roughly US$530 million deposit as a guarantee for its development of a smelting plant.

'€œWe have issued a recommendation for Freeport to get a permit extension for another six months,'€ Bambang Gatot Ariyono, the ministry'€™s director general of mineral and coal said in Jakarta Tuesday.

He said that Freeport would be allowed to export up to 1 million tons of copper concentrate during the six-month period. Bambang said that the recommendation was issued because the company had agreed to pay the required 5 percent export tax. '€œThen, the $530 million deposit requirement, we are still discussing,'€ he said.

The recommendation from the Energy and Mineral Resources Ministry will be used as the basis for the renewal of the export permit which will be issued by the Trade Ministry.

As reported earlier, Freeport'€™s copper concentrate exports were stopped in late January because the mining giant had not met the government'€™s demand that it pay $530 million as a guarantee of its commitment to building a new smelting plant.

The company is required to pay the deposit because the construction progress of the smelter is behind, at only 14 percent, far below the minimum 60 percent.

Previously, the ministry'€™s minerals director Mohammad Hidayat said that the government would ease requirements for mining companies to build smelting plants.

'€œWith the current economic condition it is financially difficult for mining companies to build smelters,'€ he 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 necessary facilities to be completed, ending in 2014, so that companies would have time to prepare for the full ban on exporting raw-minerals.

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 developments.

Freeport, which runs one of the world'€™s biggest copper mines in Papua, produces around 2 million tons of copper concentrate a year. As much as 30 to 40 percent of the total production is shipped to an existing smelter in Gresik, East Java. The remainder is shipped overseas.

The new smelter, expected to cost $1.2 billion, will be located near the existing one in East Java.

The government'€™s demand for a smelter deposit was '€œinconsistent'€ with an agreement reached between the two sides in mid-2014, Freeport CEO Richard Adkerson said as reported by Reuters in late January.

According to that agreement, Freeport must sell the government a greater share of the Grasberg mine, and invest in domestic processing to win an extension of its mining contract beyond 2021.

The US mining giant wants to invest $18 billion to expand its operations at Grasberg, but is seeking government assurance first that it will get a contract extension.

Freeport'€™s long-held desire to continue mining in Indonesia beyond 2021 has been beset by controversy, including cabinet infighting, resignations and a major political scandal that led to the resignation of the House of Representatives speaker.