A Tough Year for Freeport In­done­sia

Indonesia Expat - - NEWS - BY ERIN COOK & SHAN­NON CLAU­DIA

For the In­done­sian arm of US min­ing gi­ant Freeport McMoRan, 2017 has hardly been a stel­lar year. With seem­ingly end­less le­gal tan­gles amid con­tract ne­go­ti­a­tions and on­go­ing la­bor dis­putes, the year will be marked as one in which much was de­vel­oped de­spite the odds. So, three- quar­ters of the way through the year: what has been achieved and what is left?

Go­ing pub­lic

In­done­sia Stock Ex­change Pres­i­dent Di­rec­tor Tito Sulis­tio said In­done­sia is the global min­ing gi­ant’s largest rev­enue raiser and it is time it goes pub­lic in In­done­sia.

Speak­ing in July, Sulis­tio said the firm, which is listed over­seas, was pre­vi­ously listed in In­done­sia from 1994 to 1995 un­der the name In­do­cop­per. Dur­ing that time, the shares ac­counted for

9.36 per­cent of In­do­cop­per and were pur­chased by a Freeport af­fil­i­ate, re­turn­ing to the firm af­ter the 1995 delist­ing.

“They reap profit in In­done­sia, but the hold­ing com­pany is listed over­seas,” he said. The call is part of a larger push to list 53 for­eign com­pa­nies who have ma­jor op­er­a­tions in In­done­sia, yet are listed else­where, to go pub­lic on the IDX. Tar­geted for­eign com­pa­nies in­clude those in min­ing, prop­erty, palm oil and plan­ta­tions, ac­cord­ing to a re­port from

Tempo. Most are listed in Sin­ga­pore, Aus­tralia, China and Malaysia.

Now is the time, Sulis­tio told Freeport and oth­ers. Pre­vi­ous con­cerns over In­done­sia’s stock ex­change have all but dis­ap­peared af­ter a se­ries of struc­tural re­forms.

Con­cerns over lack­ing liq­uid­ity have been re­solved with the IDX now serv­ing 340,000 trans­ac­tions daily, he said. Plans to at­tract more state- owned firms will also help so­lid­ify the mar­ket.

“In­done­sia has many in­fra­struc­ture projects and it is time for them to be fi­nanced by the cap­i­tal mar­ket, in­stead of the state bud­get,” he said, as re­ported by Tempo.

Sulis­tio also noted In­done­sia’s strong econ­omy as an in­cen­tive.

“We have also ob­tained in­vest­ment grade. There’s no rea­son not to be listed at the IDX,” he said

Di­vest­ment, di­vest­ment, di­vest­ment

Freeport In­done­sia has an­nounced plans to re­lease shares equiv­a­lent to 5 per­cent in the near fu­ture. This is part of a larger 15 per­cent share di­vest­ment process to be un­der­taken by Freeport McMoRan, the ma­jor­ity share­holder of Freeport In­done­sia.

The In­done­sian gov­ern­ment has main­tained Freeport must di­vest shares if it in­tends to con­tinue op­er­a­tions within the coun­try. In­tro­duced in Jan­uary, the gov­ern­ment de­manded Freeport must give up the 1991 con­tract as well as di­vest a 51 per­cent stake in its lo­cal unit, pay higher roy­al­ties and con­struct a sec­ond cop­per smelter. The de­mands brought the Gras­burg mine in Pa­pua, the third largest cop­per mine in the world, to a grind­ing halt.

The an­nounce­ment of the 5 per­cent di­vest­ment, made by In­dus­try Min­is­ter Mo­hamad S. Hi­dayat in July, fol­lowed con­tract rene­go­ti­a­tions with Freeport In­done­sia CEO Rozik Soetjipto dur­ing which stock di­vest­ment was on the agenda.

Freeport is ex­pected to of­fer a 10 per­cent stake to the cen­tral gov­ern­ment, which would be passed on to the pro­vin­cial gov­ern­ment of Pa­pua if de­clined. A fur­ther 5 per­cent is ex­pected to be of­fered to the pub­lic, list­ing Freeport on the In­done­sian Stock Ex­change.

Di­vest­ment is just the first step in cre­at­ing a long- stand­ing agree­ment be­tween the miner and the gov­ern­ment. Freeport has in­sisted a new con­tract be drawn up be­fore com­mit­ting to the US$15 bil­lion in­vest­ment nec­es­sary for the new smelter.

“Freeport In­done­sia promised to com­ply with In­done­sia's min­eral and coal laws but has no plans to build a smelter. It is pre­par­ing a (mem­o­ran­dum of un­der­stand­ing) with three In­done­sian smelter com­pa­nies,” Hi­dayat said.

Rene­go­ti­a­tions

Fi­nance Min­is­ter Sri Mulyani

In­drawati ear­lier this month con­tin­ued ne­go­ti­a­tions with Freeport. She said any out­come must see in­creased gov­ern­ment rev­enue.

“Any term, any name used, I don’t care. The main thing is the rev­enue col­lected by the gov­ern­ment should be greater than be­fore. That’s the gov­ern­ment’s stance. And it’s be­ing for­mu­lated,” she told Tempo.

Freeport is ex­pected to of­fer a 10 per­cent stake to the cen­tral gov­ern­ment, which would be passed on to the pro­vin­cial gov­ern­ment of Pa­pua if de­clined.”

Ne­go­ti­a­tions, which be­gan in May, are stalling with the gov­ern­ment in­sist­ing on a 51 per­cent di­vest­ment and Freeport ad­vo­cat­ing for 30 per­cent. The miner ar­gues it has ‘re­duced its obli­ga­tion’ af­ter large- scale in­vest­ment, ac­cord­ing to Tempo.

The ar­du­ous na­ture of the ne­go­ti­a­tions does not con­cern In­drawati: “We are pre­pared to ne­go­ti­ate un­til an agree­ment is reached. There­after, we will talk about the com­po­si­tion, when, who would be po­ten­tial buy­ers and the ar­range­ment.” Ne­go­ti­a­tions will con­tinue un­til Oc­to­ber, with Freeport McMoRan, par­ent com­pany of Freeport In­done­sia, Chief Ex­ec­u­tive Richard Ad­ker­son warn­ing a will­ing­ness to go to in­ter­na­tional ar­bi­tra­tion if nec­es­sary.

Labour woes

Reg­u­la­tions aren’t the only prob­lem for Freeport In­done­sia, with a 5,000 worker strong strike ex­tend­ing into its fourth month.

Late July, Reuters re­ported Freeport In­done­sia Union In­dus­trial Re­la­tions Of­fi­cer Tri Pus­pi­tal said no so­lu­tion had been found to worker’s con­cerns. The strike was called in May af­ter 10 per­cent of the work­force had been laid off amid cost- cutting.

By May, Freeport man­age­ment said min­ing rates at the mas­sive Gras­berg mine had been im­pacted by the strike.

“We will de­mand that the gov­ern­ment up­hold fun­da­men­tal labour stan­dards,” In­dus­triALL As­sis­tant Gen­eral Sec­re­tary Ke­mal Özkan told Reuters ahead of a meet­ing in In­done­sia.

In­dus­triALL rep­re­sents 50 mil­lion work­ers in 140 coun­tries and has pre­vi­ously fo­cused on the re­gion’s dan­ger­ous gar­ment in­dus­try.

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