Govt to Extend Freeport?s Contract of Work

 
Kartini Laras Makmur, Yanuar Pribadhie
 
In just less than eight years from now in 2021, the contract of work or Kontrak Karya (KK) between Indonesia and PT Freeport Indonesia will expire. In anticipation, Freeport—arguably the biggest mining company in Indonesia—wishes to confirm the conditions for the renewal of the KK in order to extend their mining operation. Jero Wacik, Minister of Energy and Mineral Resources (ESDM), has indicated that the Government will be more careful in renewing Freeport’s KK .
 
“We have only 8 months left for our administration. Therefore, we cannot rush in deciding on the extension. It may well be that the next administration will discuss this more intensively,” said Mr. Wacik on Monday.
 
Regardless of the timeframe, the Government may grant the extension, provided that Freeport is willing to satisfy six points for renegotiation. This contract renegotiation is mandated by Presidential Decree No. 3 of 2012.
 
Rozik Sotjipto, Freeport’s President Director, has confirmed that the Government has proposed six points in return for an extension.
 
The first point is reducing 40% of the working field for support activities to 127 thousand hectare. Second, an increase in income tax from 10 percent to 30 percent. Third, an increase in royalties in accordance with Government Regulation No. 9 of 2012. Fourth, Freeport must cooperate with the Ministry of Industry to establish a task force to increase local mining local in Papua. Fifth, the Government’s shares ownership must increased to 20% no later than 2021. Finally, Freeport must conduct domestic mineral processing and purification.
 
KPK’s Warning
The Indonesian Corruption Eradication Commission (KPK) has reminded the ESDM that the State may suffer losses from the existing mining contracts. This arises due to the lack of non-tax state revenue collected from mining companies in the form of royalties.
 
The KPK has determined that royalty collection from 37 KKs and 74 coal mining business working agreements (Perjanjian Karya Pengusahaan Pertambangan Batubara/PKP2B) are not optimum.
 
Further, KPK’s spokesperson Johan Budi says that the non-tax state revenue imposed on KKs and PKP2Bs are lower that the tariff applicable to mineral mining business licenses.
 
“In response to this finding, the ESDM has agreed to renegotiate the royalty tariff on all KKs and PKP2Bs and impose sanctions on those who are not cooperative in renegotiation,” asserted Mr. Budi.
 
Mr. Budi also highlights that there has been significant and unnecessary delays in the renegotiation process. He emphasizes that Article 169 of the Mining Law mandates renegotiations to be conducted within one year after the law was enacted. In other words, the renegotiations should have been completed by 12 January 2010.
 
This delay has caused financial losses to the State because there are levies that are not being collected during the period of delay. The KPK estimates that the deficit between the proper and actual levies that have been collected is approximately USD 169.06 million per year.
 
“As a prevention effort, we call upon the Ministry to impose rather firmer sanctions on those who are unwilling to engage in renegotiation and royalty tariff adjustment,” said Johan.
 
(hot/kc)