Jonan: Freeport Contract is Different from Oil and Gas Company Contracts

Mining Industry Holding PT Inalum (Persero) has been legally the majority owner of PT Freeport Indonesia (PTFI).

But there are still many outstanding allegations if the company can be owned free of charge as happened to oil and gas companies. Is that so?

Inalum on Friday (21/12) increased its ownership in PTFI from 9.36% to 51% by paying US $ 3.85 billion or Rp. 55 trillion and controlling the company that owns the Grasberg mine in West Papua with gold, bronze and silver assets of Rp. 2,400 trillion to 2041.

According to Energy and Mineral Resources Minister Ignasius Jonan, as quoted from a recent television interview, PTFI must be purchased because even though the Work Contract (KK) will expire in 2021, it is stated that KK can be extended up to 2041, or 2×10 years, and can only be canceled for reasonable reasons.

He also said that the mining KK was different from oil and gas KK.

“This is different from upstream oil and gas operations. If the upstream oil and gas operation is clear, so far, like Rokan and Mahakam. Does anyone say, ‘oh is this like Mahakam Sir? ‘Different. Mahakam, all of the investments are cost recovery. All investments made as long as it is approved by the state are paid by the state. That means that all upstream oil and gas installations are state owned,” said Jonan.

“For mining like PTFI or other mining, except for PKP2B generation 1 and 1 plus which are for coal, except that the assets are all owned by the state. Except for those outside the KK, most of them, including PTFI, invest themselves.” he added.

PTFI conducted exploration and mining based on CoW with the Indonesian government signed in 1967 during the Soeharto era and renewed through CoW in 1991 at the time of the President with the same operating period until 2021.

Regarding the operation period, the United States Freeport McMoRan (FCX) Company, which controls PTFI, and the government has different interpretations of the contents of the extension article.

The definition of FCX is that KKs will expire in 2021 but they have the right to submit a two-year extension (up to 2041). The government will not hold or delay the agreement “unnaturally”.

Different interpretations regarding the word “unnatural” must be resolved in an international court (arbitration).

While terminating PTFI operations in 2021 is not an option.

“How about if we stop that in 2021, it can’t go anymore, we decide you are not suitable and so on. Can you? Can. One we must be prepared to face international arbitration, surely and this is also long and the cost is large,” said Jonan.

In addition to not guaranteed victory in arbitration, there is a possibility that the operation must stop.

This underground mine cannot stop for a long time. Because if it’s a long period of time all the halls or caves are underground and so on, if according to mining experts, the mining engineer, this will definitely be disrupted, and it will be very costly to recover . This is Grasberg or in Tembagapura or in Timika it is one of the largest underground mining operations in the world. The most complex are at least in the world.

If taking the arbitration path, the impact of PTFI’s operations will be reduced or even stopped. This will result in the collapse of the underground tunnel so that the cost of repairing it can be more expensive than the divestment price. The Grasberg Mine is the most complicated in the world.

Inalum previously explained that the other impact of the cessation of PTFI’s operational activities due to the arbitration process was the disruption of Mimika’s economy because around 90% of their economy was driven by PTFI’s activities.

There is no guarantee that Indonesia can win in arbitration, whose trial can take years, and if it loses, the government is obliged to pay compensation far greater than the divestment price.

There is no article in the KK that says if the contract expires, the government can get PTFI and the Grasberg mine free of charge.


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