Interview: Rozik B Soetjipto
What is your assessment of Indonesia’s current regulatory framework in the mining sector?
ROZIK B SOETJIPTO: While local and international stakeholders seem to be concerned only with divestment obligations, taxation and downstream obligations, I actually prefer to talk about the government’s overall policy, which started with the enactment of Law No. 4 of 2009 and the creation of the Mining Business Licence, which replaces Contracts of Work (CoWs). Mining is a long-term, high-risk investment and CoWs provided greater certainty and long-term security for investors. The Law No. 4 of 2009 and the new changes it has already brought about will most probably create a scenario of uncertainty that could hamper growth in the short and medium term. The government must differentiate between investors that are already in Indonesia and potential ones. For instance, at Freeport our approach is necessarily more pragmatic as we own numerous assets and have been in the country for decades. But for those investors who are not yet there and can choose whether to invest in Indonesia or in other countries, the situation might be different. I believe these changes may deter further investment in the mining sector and from foreign miners in particular.
Having said this, I would say Indonesia’s regulations are still very moderate and less severe when compared to what we see in some Latin American countries, for instance. We do support the idea of adding value to our minerals and expanding the country’s downstream capacity, but of course we need to look at it from a business standpoint. The government must also reconsider implementing domestic market obligations regulation by 2014 as the investors require more time to assess the viability and profitability of the necessary investments, while the government will have to assume the loss in tax revenue that will follow during the first years of implementation. Other issues, such as the size of mining concession areas and the involvement of local companies in operations, are still open for discussion, so nothing can be said about those at the moment.
How are negotiations to secure a contract extension for Freeport’s operations at the Grasberg mine in Timika, Papua progressing?
ROZIK: It is important to recall the nature of contract of work, which once signed stipulates a fixed-term taxation scheme and other financial obligations. We are in regular talks with the special team established by the Presidential Regulation No. 3 of 2012 in charge of evaluating adjustments to CoWs and Coal Mining Exploitation Working Agreements. We expect to have negotiations concluded and the extension signed as soon as possible. Currently, we hold a contract that will end in 2021, extendable until 2041, but we have been investing heavily in the field since 2008 and are now operating underground. We invest about $700m every year so the sooner we get to an agreement with the government, the better for both parties. The government values our investment in Papua and knows we plan to invest until 2041. We have provided all the necessary information concerning our activities and plans for the future of the mine, and the government is evaluating our case. The final word is with Freeport’s shareholders and the Indonesian government, but we are very optimistic, as we believe it is in the country’s interest to secure an investment worth $16-18bn for developing the mine.
How sustainable is the current rapid rate of growth we are seeing in the mining industry?
ROZIK: Sometimes the industry thinks that sustainability is just corporate social responsibility or community development, but this is not the case. We must make a long-term commitment to full integration of local and international mining companies in Indonesia. Freeport and other mining companies, are not just ordinary businesses entities in the same way that mineral resources are not just ordinary wealth. Natural resources evoke strong emotions and the only way to move forward is with cooperation and understanding between all stakeholders so that no one feels at a disadvantage.
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