Leaked Letter Reveals How Difficult Freeport is to Government

Thursday, 05 OCtober 2017 , 12:00:00 WIB - Economy

Minister of Energy and Mineral Resoures, Ignasius Jonan (left), is seen preparing for the 72nd Mining and Energy Day celebration in Jakarta, Thursday (28/9). (ANTARA)

JAKARTA, GRES.NEWS – The leaked letter from Freeport-McMoRan Inc. chief executive officer (CEO) Richard Adkerson to the Minister of Finance’s Secretary General Hadiyanto last week has revealed how difficult Freeport has been for the Indonesian government.

The letter does not only say that the company has decided to reject the 51 percent divestment scheme, it also demands an agreement to assure stability for the company’s investments after its permit is changed from a Work of Contract (KK) to a Special Mining Business Permit (KK).

The government’s firmness is once more beaten. A draft government regulation is underway to accommodate the stability assurance demand.

The draft regulation will give Freeport Indonesia a special income tax cut that will require the mining company to only pay 25 percent, from 35 percent when it operated with a Work of Contract permit.

Finance minister Sri Mulyani refused to comment much about the leak. Concerning Freeport, we are still negotiating. I want to give you information in bits of pieces. There will be misinterpretations that will confuse everyone. Therefore, I can’t inform anything at present, including about the leaked letter," she said, Jakarta, Tuesday (3/10).

However, she did not deny that the government is drafting such regulation.

"We are preparing a government regulation concerning mining companies who change their permit from KK to IUPK. The shift means new fiscal and non-fiscal obligations need to be introduced," she said, Jakarta, Tuesday (3/10).

DISOBEDIENCE – Meanwhile, the Supreme Audit Agency (BPK) has published its Semester I-2017 Audit Results Overview, Tuesday (3/10), which revealed violations by PT Freeport Indonesia.

For instance, the company has not been following the country’s principles on sustainable and environmentally sound natural resources utilization.

Freeport Indonesia has also not been paying royalty according to the adjusted amount stipulated in the Government Regulation No.9/2012. It has been paying based on its Work of Contract that requires the company to pay a lower figure.

For this action, BPK estimates the government lost US$455.96 million, or Rp5.97 trillion, in in potential non-tax state income for the period of 2009-2015.

BPK has also found that, in 2013-2015, a component was inaccurately included as a concentrate handling cost. The mistake has reduced the amount of royalty the government has been receiving by US$181,450, or Rp2.43 trillion, a year. In total, the government has lost Rp5.99 trillion.

The agency also warns that the government has been losing potential larger income from the sluggish divestment of Freeport Indonesia shares.

Another issue mentioned in the report is Freeport Indonesia’s failure to comply with the environment law as its waste have been reaching the sea and thus damaging the ecosystem. (dtc)