T

he saga surrounding Freeport Indonesia has risen to a new level as the subsidiary of the American mining giant Freeport McMoRan has begun preparing to reduce production, which could be followed by job cuts, in a move that indirectly pushes the government to grant the company an export permit.

PT Smelting Gresik, which operates the only copper smelter in the country, stated that Freeport Indonesia issued a notice on Wednesday morning on reducing its mining activities in stages, as reported by Reuters.

“Delays in exports of copper concentrates will force Freeport Indonesia to take action in the near future to reduce production to match the available domestic capacity at PT Smelting,” Freeport Indonesia spokesman Riza Pratama told The Jakarta Post on Wednesday regarding the matter.

PT Smelting, controlled by Mitsubishi Materials Corporation with 60.5 percent share ownership, processes approximately 40 percent of Freeport Indonesia’s concentrate production. “We expect that we can soon export [copper concentrates] again,” Riza said.

Previously, the company stated it would have to significantly adjust its cost structure, reduce its workforce and suspend investments in underground development and its new smelter if the permit was not issued.

For each month of delays in obtaining approval to export, Freeport Indonesia claimed that its share of production would be reduced by approximately 70 million pounds of copper and 70,000 ounces of gold.

Freeport Indonesia currently operates the Grasberg open pit mine in Papua, the world’s largest gold mine and third-largest copper mine. Last year alone, the Grasberg mine produced more than 500,000 tons of copper and over 1 million ounces of gold, more than a quarter of Freeport McMoRan’s total output worldwide.

However, Freeport Indonesia has been forced to stop exporting copper concentrates since early January following the government’s issuance of new regulations mandating the company to ensure the development of its new smelter and convert its contract of work (CoW) into a special mining license (IUPK) in exchange for an export permit extension.

The Energy and Mineral Resources Ministry has yet to issue the permit extension because it says the company has not met all the requirements in the newly launched regulations.

“If the company has not submitted a proposal and has not fulfilled the requirements, we cannot issue the permit,” the ministry’s minerals and coal director general, Bambang Gatot Ariyono, said recently.

The requirements are stipulated in two ministerial decrees as supporting measures for the fourth revision of Government Regulation No. 23/2010 on the management of minerals and coal businesses. The decrees allow miners to continue exporting copper concentrates, certain amounts of low-grade nickel and washed bauxite.

The issuance of the ministerial regulation contravenes the 2009 Mining Law, which originally imposed a total ban on mineral ore exports in 2014, and stipulates that mining companies must build domestic smelters in a bid to strengthen the processing industry.

Atep Abdurofiq of the Association of Indonesian Mining Professionals (Perhapi) said both the government and Freeport Indonesia needed to set aside their egos to find a win-win solution.

“Freeport Indonesia should comply with all regulations issued by the government, which are aimed at the greater good of the people. Nonetheless, the government should also consider all of the company’s investment in and contributions to the country all this time,” Atep said.

Atep said Freeport Indonesia had great bargaining power as it employed more than 32,000 workers in Papua alone. Moreover, he said that Timika, where Freeport Indonesia operates, would become a “ghost town” if the company suddenly stopped operations.

Freeport Indonesia data shows that it invested US$7.7 billion in infrastructure and contributed more than $60 billion to the country’s gross domestic product in the 1992-2015 period.

At the same time, its direct benefits to the country, including in taxes, royalties, dividends and various fees, amounted to $16.1 billion, while indirect benefits such as employee wages, purchase of domestic goods and domestic investment stood at $32.5 billion.

Data from the Finance Ministry shows that Freeport Indonesia paid Rp 1.23 trillion ($92.1 million) in export duties alone to the government in 2016.