KPK Signs Memorandum of Understanding Over Natural Resources

Jakarta Globe, Mar 19, 2015

The KPK signed a Memorandum of Understanding with several government
bodies to increase oversight of the Indonesia's natural resources. (Antara Photo)

Jakarta. The Corruption Eradication Commission, or KPK, on Thursday signed a memorandum of understanding with related government ministries and institutions to boost corruption eradication in Indonesia’s natural resource sector.

“Signing this MoU is like a way for the KPK to look into each ministry and to help solve any natural resources-related problems they might have within them,” acting KPK chairman, Taufiqurrachman Ruki, told news portal detik.com.

KPK deputy chairman Johan Budi said new regulations would likely result from the MoU. He was unable to give a time frame or provide further detail.

“In this 2015 MoU we included the marine and plantation sectors,” he said. “Those two sectors were not included in 2014’s MoU. The ministries will make an action plan after the signing and we will monitor it.”

The purpose of the document is to beef up anti-corruption oversight of the country’s natural resources, from hydrocarbons to marine stocks.

“The MoU has to be realized,” President Joko Widodo said. “We should work together on eradicating corruption in the sector — it could lead to eradicating corruption for good.”

VP Kalla Tells Business Owners to Behave

Jakarta Globe, Novianti Setuningsih, Dec 08, 2014

Vice President Jusuf Kalla, left, talking with Trade Minister Rachmet Gobel at
 the leadership meeting of the Indonesian Chamber of Commerce and Industry
(Kadin) on Monday. (Antara Photo/Muhammad Adimaja)

Jakarta. Vice President Jusuf Kalla in a speech for the Indonesian Chamber of Commerce and Industry (Kadin) on Monday urged the nation’s entrepreneurs to stop ruining the environment and pay their taxes.

“In the wood-trading era, in the 1960s and 70s, a lot of trees were cut down, causing floods that we still have to deal with until now,” said Kalla, himself a successful businessman.

The vice president also told the hundreds of entrepreneurs attending Kadin’s national leadership meeting that the government was going to improve its natural resources management.

“The mining sector was profiting while our environment was wasted. The [new] regulation is made to protect our natural resources,” Kalla said.

He added that business should also pay all taxes and royalties they owe, and that owners could be banned from traveling abroad if they fail to do so.

Kalla explained that the government needed the income from taxes and royalties to help fund its program to improve the nation’s infrastructure.

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Indonesian mineral export ban may hurt miners

Deutsche Welle, 15 January 2014

Indonesia is one of the world's largest exporters of raw materials. But now the government wants to promote domestic processing by banning mineral ore exports. The ban, however, threatens the livelihoods of many miners.

It is arguably one of the most far-reaching economic policy decisions the Indonesian government has taken since President Susilo Bambang Yudhoyono came to power some ten years ago. The new law, which came into effect on January 12, stipulates that only "processed" minerals may be shipped to other countries - although some exceptions were made. The government argues the long-planned ban on mineral ore exports is designed to strengthen the state-owned manufacturing industry.

Controversial legislation

According to Sutan Bhatoegana, chairman of the Indonesian Parliament's House Committee for Mining Affairs, the Southeast Asian nation will "benefit greatly" from this law because "we will no longer sell raw materials for little money."

The government announced it would allow

 certain copper concentrates to be exported

until 2017

But Bhatoegana also told DW that the major international mining companies should be compelled to process the raw materials in the country. "If corporations build processing plants in Indonesia, this will create additional jobs and enable the government to make larger profits."

The new law is highly controversial. International mining companies as well as some Indonesian labor market experts were up in arms against the ban, which was in the making since 2009. Only minutes before the legislation was passed, the government finally relented and gave in to some of the major demands of the mining companies, resulting in materials such as copper, iron ore, lead and zinc being excluded from the export ban.

This was mainly a concession to two large American mining companies that together account for about 97 percent of the nation's total copper mining output. The Ministry of Industry announced that it would allow certain copper concentrates to be exported until 2017. However, "we will impose a progressive export tax: the lower the degree of processing of copper ore, the higher the tax," said Industry Minister MS Hidayat.

Dismissals or new jobs?

It remains unclear whether the country will benefit from an export ban in the long run. Producers of nickel ore and bauxite are particularly hard hit by the decision. Although the new law is aimed at creating jobs, major American mining companies have so far failed to make the necessary investments.

They have had to scale down their operations and now they are threatening to lay off thousands of workers. Sutan Bhaetogana also admits that this "will have negative consequences in the short term," and result in a temporary drop in government revenues. But the member of parliament is nonetheless convinced that this will last only for three to four months and that the nation will recover.

However, small, local traders have a different view. Their livelihoods are threatened as they cannot afford to build and run their own processing plants. According to the Indonesian Mineral Entrepreneurs Association, some 30,000 mine workers have already lost their jobs, prompting people to take to the streets of Jakarta in protest. Indonesia will hold both parliamentary and presidential elections this year. Analysts expect the dispute surrounding the mining industry to become one of the top campaign issues.

Indonesia is one of the world's largest exporters of raw materials

Rising prices

The first effects of the export ban can already been seen on the world's commodity exchanges, with the price of nickel rising by more than six percent within a span of four days. Indonesia is the world's largest exporter of nickel ore, a material used in the production of stainless steel. Thus far, about 90 percent of exports are sent to China for processing. Nickel ore is an important raw material in China, where it is used to manufacture small electrical appliances. It is also used in the automotive industry and the construction sector.

Newly discovered Fujian mine could produce 250,000 tonnes of gold

Want China Times, Staff Reporter 2013-09-18

Gold ore. (File photo/CFP)

Major gold reserves have been discovered in southeast China's Fujian province, according to local news website Taihainet.

The Fujian Geological Prospecting Bureau has verified the find in Dehua county after over a decade of research and investigation.

The mine is estimated to hold over 10 million tonnes of ores that may produce over 250,000 tonnes of gold. The discovery could also provide important clues for researchers to find other gold mines.

EU deal to tackle mining corruption

Google – AFP, 10 April 2013

Spanish coal miners demonstrate with their lamps lit through the streets

of the city of Leon, Spain, on June 12, 2012 (AFP/File, Cesar Manso)

BRUSSELS — EU legislators struck an anti-corruption deal Tuesday that aims to force big mining companies to make public the payments they make to governments where they operate, officials said.

Bargaining between EU member states and European Parliament MEPs delivered the deal focused on companies with turnovers of at least 40 million euros, total assets worth 20 million or 250 employees, European Union Markets Commissioner Michel Barnier said in a statement.

The agreement covers "disclosure requirements for the extractive industry and loggers of primary forests and on simpler accounting requirements for small companies."

Barnier, a former French foreign minister, said the extractive business was "far too often shrouded in secrecy", and that the new legislation would therefore "help fight tax evasion and corruption."

It "shows how EU legislation can be a catalyst for change in developing countries," he added, arguing that communities in resource-rich territories "will finally be better informed about what their governments are being paid by multinationals for exploiting oil and gas fields, mineral deposits and forests."

The Oxfam charity, which campaigns on behalf of developing countries, said the accord was to be welcomed.

"It's excellent news that the EU is moving towards a law that will help ordinary people harness the natural resource wealth of their countries to be lifted out of poverty," said Catherine Olier, Oxfam's EU development expert.

But at the same time, the "EU politicians today could have taken a bolder stance against tax evasion and corruption by including other sectors such as telecommunications or construction," Olier said in a statement.

"Strikingly, poor countries lose more to tax dodging than they receive in aid each year."

The accord must now go to be approved by the 27 EU member states.

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Bumi: Rothschild defeated in battle to oust board

BBC News, 21 February 2013 

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Nathaniel Rothschild was hopeful of
 regaining control of Bumi, a company
he helped found

Financier Nathaniel Rothschild has lost his bid to oust the current board of coal mining giant Bumi, the company he helped to found.

Chairman Samin Tan survived a vote to remove him but informed the board he was stepping down.

Mr Rothschild had wanted to rejoin the company and expel 12 of the 14 board members, including the chief executive and chairman.

Shareholders rejected his attempts and voted to remove just two members.

Chief executive Nick von Schirnding also managed to keep his post, with more than 60% of votes cast in his favour at the London meeting.

Mr Tan, who received 57% of votes in favour of hisretention, said he would resign once a new independent chairman was found.

The company said it would look for a new chairman "who has experience in, and is familiar to, the London market", according to a statement.

The two members who were ousted were Jean-Marc Mizrahi and Nalinkant Rathod.

Mr Rothschild set up Bumi with the influential Bakrie family, part of Indonesia's political and business elite, in 2011.

The deal was intended to offer international investors the chance to buy into natural resources assets in emerging markets while ensuring they were protected by UK market rules.

Fraud allegations

But the partnership, and relations with the Bakrie family, soured after Mr Rothschild called for a radical clean-up at the firm.

To make matters worse, he made allegations of potential misuse of development funds and other assets at the firm in September 2012.

Allegations of financial irregularities at Bumi's key Indonesian operating subsidiary, PT Bumi Resources - in which it owns 29% alongside the Bakrie family - first emerged that month, after Mr Rothschild received information from a whistleblower.

However, an investigation by legal firm Macfarlane, commissioned by the management of the London-listed parent company, said the evidence provided to Mr Rothschild comprised emails that had been obtained illegally.

Macfarlane said the claims that money intended to finance development of coal mines had been misappropriated could not be substantiated, in large part due to "the unwillingness of key parties to be interviewed and provide information".

Bumi's management said that it had referred the matter to the relevant authorities, including the Indonesian financial services authority, and the UK Serious Fraud Office.

Mr Rothschild quit the board in October.

Bumi's new chief executive, Mr Schirnding, has negotiated an amicable divorce with the Bakrie family, including the sale of its stake in PT Bumi Resources for $580m (£370m), and the family's divestment of its 24% in the London-listed company.

But the board warned that the deal would be scuppered if Mr Rothschild succeeded in retaking control of the company.

The company's share price has slumped 60% since it listed in 2011.

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Indonesia’s PT Bumi Starts Probe Following London Investigation

Rothschild Says Indonesia's Bumi Can Shake Up Coal World
Maligned at Home, Bakrie Group Is the Face of Indonesia Inc. Around the World

The company formed by the union of Bumi Resources and

Berau Coal Energy is looking to acquire coal mines around

the world and become a global giant, investor Nathaniel

Rothschild, left, said on Friday, Dec 17, 2010.

CNBC Admits We're All Slaves To Rothschild Central Bankers Global Government

Moody's may cut Portugal on growth, debt concerns (Dec 21, 2010)

Moody's slashes Ireland to Baa1, warns more may be ahead (Dec 17, 2010)

Moody's may cut Greek credit rating, puts on review (Dec 16, 2010)

Moody's warns it may downgrade Spain's debt (Dec 15, 2010)
Moody’s Threatens Credit Downgrades for Belgium, U.S. (Dec 14, 2010)

Matthew message (Channelled by Suzanne Ward, Feb 18, 2013)

"... The Rothschild faction of the Illuminati, which governed its empire from London and the Vatican, lost its media foothold along with its other powers in that part of the world. A section of the Illuminati’s Rockefeller faction, headquartered in Washington, DC, and New York City, still has influence on major media in the US as well as on Wall Street; and their lingering foothold in Congress is evident in the intransigence that has stagnated progress. ..."

Mining Company Freeport Agrees to Cut Concession Area

Jakarta Globe, ID/Retno Ayuningtyas, January 03, 2013

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Mining company Freeport Indonesia has agreed to trim its concession area in Timika, Papua, indicating that the government’s efforts to renegotiate mining contracts have started to bear fruit.

“There has been some progress with renegotiation, the concession area [of Freeport] will be cut,” Thamrin Sihite, the director for mineral resources and coal at the Energy and Mineral Resources Ministry, said last week.

Thamrin did not mention how much of Freeport’s concession area would be cut, however, according to the 2009 mining law, the maximum size of a concession area must be limited to just 25,000 hectares.

Currently the company controls 170,000 hectares in Timika where the world’s largest recoverable reserves of copper and the biggest gold mine in Indonesia, the Grasberg mine, is located.

Limiting the size of concession areas for miners is part of the renegotiation goals initiated by President Susilo Bambang Yudhoyono’s administration. The 2009 mining law also compels to government to seek more revenue, bigger royalty fees, order miners to establish ore processing facilities as well as divest stakes to local entities.

Miners under the “contract of work” or the previous mining contract are not affected by the law. Only miners under the new permit called the “mining business licenses” are affected.

Yudhoyono said in June last year that he has a “moral obligation” to seek changes in contracts, some of which were signed decades ago that he believed are “unfair.”

Led by Chief Economics Minister Hatta Rajasa the government has set up a team to renegotiate contracts with miners that hold contract of works, such as Freeport and Newmont Nusa Tenggara.

Thamrin said the government views royalties, concession areas and the length of contracts as related to each other and are all for a greater benefit of the state.

“For the government, the bigger the royalty, the better it is,” he said.

Freeport currently pays 1 percent in royalty on their gross gold sales, apart from a 35 percent corporate income tax, which is bigger than the common 25 percent tax charged for non-resource companies. The government is seeking to increase the royalty for gold to 3.75 percent.

Freeport Indonesia’s president director, Rozik B. Soetjipto, said his company is willing to renegotiate with the government.

The company has also sent responses toward the six clauses of contracts that will be reviewed.

“Internally, we already have our position, but we cannot reveal it yet,” he said.

Rozik believes the cut in concession areas will not impact on the company’s production.

He said Freeport Indonesia, which in the past relied on open-pit mining, for extracting copper ore, has begun underground mining construction as surface reserves have depleted.

The project will involve between $16 billion to $18.5 billion in investments. The underground mining is expected to start in 2017.

Indonesia’s PT Bumi Starts Probe Following London Investigation

Jakarta Globe, November 09, 2012

Bumi Resources' coal mine in East Kalimantan. The Indonesian company is the
biggest producer of coal in the country. (Photo Courtesy of Bumi Resources)

  

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Indonesia’s PT Bumi Resources, the nation’s biggest producer of power-station coal, said a South Jakarta court has approved an independent investigation into its financial accounts dating back to 2010.

The investigation was prompted by the company’s audit committee “in view of the public notifications by a shareholder, Bumi Plc, and various reports, both in international and local media,” the Jakarta-based coal producer said on Friday in an e-mailed statement.

Reports are due to the Chief Justice of District Court of South Jakarta within 90 days of the appointment of an auditor, it said.

PT Bumi is part-owned by the Bakrie family and is at the center of a feud involving London-listed Bumi Plc, owner of 29 percent of the Indonesian mining company, and Bumi Plc co- founder Nathaniel Rothschild.

Bumi Plc, which has lost 70 percent in trading this year, in September started an urgent probe into “potential financial and other irregularities” at its Indonesian operations, PT Bumi and PT Berau Coal Energy Tbk.

The so-called forensic audit will focus on the accounts for the financial years of 2010 through 2012, PT Bumi said.

The Indonesian company referred to funds from unit PT Bumi Resources Minerals that are invested in United Overseas Bank Ltd. without giving further details of the probe.

An official at London-based Bumi Plc declined to comment.

The Indonesian investigation comes as Bumi Plc studies alternative proposals for its assets from two of the key parties who founded it in 2010, Rothschild and the Bakrie Group.

Rothschild, 41, has appointed Morgan Stanley to advise him and held talks with potential new investors as well as current holders of Bumi, a person familiar with the matter said last week.

An offer from the scion of a centuries-old banking dynasty would counter a $1.2 billion proposal from the Bakries for Bumi Plc’s stakes in two coal producers — its holding in PT Bumi and the 85 percent it has in PT Berau Coal Energy.

The Bakries made their offer last month to help resolve “irreconcilable differences” with Rothschild. The financier has described the Bakries’ offer as not being in the interests of investors.

Bumi dropped 2.5 percent to 266.9 pence at 1:10 p.m. in London. Bumi Resources was unchanged at Rp 650 on Friday in Jakarta and Berau Coal Energy was also unchanged at Rp 220.

Bumi Plc said Sept. 24 it was starting a probe into potential financial “irregularities” at its Indonesian investments. The probe is linked to a $637 million writedown of development funds and exploration assets in Bumi’s Dec. 31, 2011, year-end financial statement.

London-listed Bumi won’t make a recommendation on any possible transaction until the investigation is “appropriately advanced,” the company said Nov. 5.

Bloomberg

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Indonesia's Bakries slam Rothschild Bumi resignation

Yahoo, AFP, 16 October 2012

Indonesia's powerful Bakrie family hit out at British tycoon Nathaniel Rothschild Tuesday after he resigned from the board of Bumi Plc, saying he was a "threat to all shareholders" of the mining firm.

In the latest saga of a row analysts say has attracted the attention of possible foreign investors in Indonesia, the Bakries said Rothschild should have quit earlier to avoid Bumi Plc's stock price from plunging.

"Mr. Rothschild is a threat to all shareholders who are fighting for the best interests of the company, and ultimately for themselves and the investors they represent," Bakrie Group spokesman Chris Fong said.

"There are no winners in this deal anymore, it's pure damage control."

Rothschild's resignation on Monday from Bumi, which he co-founded with the Bakries, came as its board considers a proposal by the Indonesian family to sever their ties with the company and buy its most productive Indonesian mines.

The long-running power struggle has seen the London-listed firm's shares slump more than 70 percent this year.

At the heart of the dispute is a Rothschild-backed probe into alleged financial irregularities at the Bakrie-founded Bumi Resources, Indonesia's largest coal miner, which is part-owned by Bumi Plc.

Bumi Resources is among a string of companies owned by the family of Aburizal Bakrie, one of Indonesia's wealthiest men and a likely candidate in presidential elections in 2014.

The 65-year-old is one of Indonesia's richest men with businesses spanning coal, telecommunications to construction.

But he is a highly divisive figure in Indonesia after one of his companies was linked to the triggering of a mud volcano near a gas drilling site in 2006.

The Bakries have offered to give up their 23.8 percent stake in Bumi and pay about $1.2 billion for its mines, which would leave Bumi Plc with no assets other than the cash from the deal.

In the resignation letter quoted by Dow Jones Newswires, Rothschild stated his vehement opposition to the Bakries' proposal.

He also said chairman Samin Tan appeared "determined to drive through the Bakries' proposal", a move he decried as a "disgrace" without first completing a probe into alleged financial irregularities at Bumi Resources.

The 41-year-old scion of a European banking dynasty also expressed his determination to fight for the company's investors from outside the board and said he regretted helping the Bakrie family list in London.

The offer for the break-up from the Bakries followed an investigation order by the Bumi Plc board in September over "potential financial and other irregularities", including a $637 million writedown of development funds and assets in Bumi Resources.

Rothschild was ousted as co-chair of Bumi Plc in March after calling for a "radical clean-up" of the Indonesian firm.

Analysts say the ugly battle has been carefully watched by potential foreign investors already wary of corruption and a lack of corporate governance in Indonesia.

"It had been hoped that the listing of Bumi Plc in London would create a new ethos," said Keith Loveard of Jakarta based consultancy firm Concord Consulting.

"Regrettably the reverse has occurred," he added.

Nat Rothschild has resigned as a non-executive director

of mining group Bumi. Photograph: Nick Harvey/WireImage

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New Zealand Fund Pulls Freeport Investment, Cites Papua Rights Offenses

Jakarta Globe, Jonathan Vit, September 27, 2012

An aerial view of a giant mine run by US firm Freeport-McMoran Cooper & Gold,
 at the Grassberg mining operation, in Indonesia's Papua province in this July 2005
file photo. (Reuters Photo/Stringer) 

        

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New Zealand’s public pension fund pulled more than $1 million in investment from Freeport-McMoRan Copper & Gold over allegations of human rights offenses committed by security forces around the company’s controversial Grasberg mine in Papua.

The $15.7 billion New Zealand Superannuation Fund announced on Wednesday that it would cease investment in four companies that violate international ethics standards.

The fund raised concerns over “breaches of human rights standards by security forces around the Grasberg mine, and concerns over requirements for direct payments to government security forces by the company in at least two countries in which it operates.”

Indonesian security forces have a heavy presence in the restive province, where police and the Indonesian Military (TNI) are ostensibly suppressing a decades-long insurgency waged by members of the Free Papua Movement (OPM).

But Human Rights Watch, citing leaked military documents, has alleged that security forces have targeted everyone from tribal leaders to political activists in Papua. Security forces routinely suppress pro-independence groups in the province, jailing those caught flying the “Morning Star” flag for treason and killing local leaders suspected of being separatists, like Reverend Kinderman Gire and Mako Tabuni, of the West Papua National Committee (KNPB).

Security forces hired by Freeport’s local subsidiary also engage in regular firefights with unknown gunmen along a road leading to the mine in Timika, Mimika district. The OPM operates from a base in Puncak Jaya, near the Grasberg mine.

The fund concluded that while Freeport’s human rights policies have improved in recent years, the activities of the government forces it employs are beyond the company’s control.

“This limits the effectiveness of further engagement with the company,” the fund said in a statement.

Human Rights Watch applauded the move, calling it “a sound decision indeed.”

“Businesses are getting more and more conscious about human rights abuses,” said Andreas Harsono, a researcher with HRW. “Sound businesses do care about human rights.”

The Ministry of Defense declined to comment on the move. Papua Police, local representatives of the TNI and Freeport Indonesia were unavailable for comment by deadline.

The fund had $1,062,061 in holdings in Freeport as of June 30.

Japan’s Tokyo Electric Power Company, China’s Zijin Mining Group and construction and defense firm KBR were also dropped from the fund’s portfolio.

All four were dropped after the fund decided that they were unlikely to affect any change in their policies.

“In making a decision to exclude a company from our portfolio, one of the tests we apply is whether engagement with the company might realistically lead to sufficient improvements,” the fund said. “We have come to the conclusion that further engagement by the Fund with these companies is not likely to be effective.

“We would rather focus our efforts on companies where we believe we can make a difference.”

The fund’s equity portfolio includes shares in more than 6,500 companies. It manages the government pension fund available for all New Zealand residents 65 and older.

Freeport, which runs the largest copper mine in the world at Grasberg, has a market capitalization of $37.29 billion and pulled in $3.17 billion in net income last year.

Seventy-three percent of its shares are held by institutions and mutual funds.

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Academics call for end to military approach in Papua

Shares Slump as Coal Miner Bumi Probes Irregularities

Jakarta Globe, Clara Ferreira-Marques, Sarah Young, Janeman Latul & Neil Chatterjee, September 24, 2012

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London. Bumi Plc, the coal mining group controlled by Indonesian investors including the politically influential Bakrie family, has begun an urgent investigation into allegations of “financial and other irregularities” at its Indonesian operations, sending its shares down more than 30 percent.

Bumi, co-founded by financier Nat Rothschild, said in a brief statement on Monday that it had commissioned an independent investigation into the allegations concerning its Indonesian subsidiaries, including 29-percent owned Bumi Resources, Asia’s biggest exporter of thermal coal, which is used in power stations.

Bumi is one of several foreign-owned, London-listed miners that have raised corporate governance concerns among investors over the past year. It has heavily underperformed the mining sector since its re-listing in June last year, weighed down by worries over its subsidiaries’ debts amid weak thermal coal prices, battles between shareholders and a complex corporate structure.

The group’s Indonesian partners tried to oust Rothschild from the board last year after he called for a “radical cleaning up” of governance at Bumi Resources, in what was seen as a sign of his frustration with the Bakries. In a reshuffle at Bumi Plc that followed, Rothschild stepped down as co-chairman, and key investor and coal entrepreneur Samin Tan took the chairman’s role.  

The investigation, to be led by an as-yet unnamed law firm, is expected to include a close look at some $300 million of funds used by subsidiaries and affiliated companies to develop new projects, and also at certain loans extended by Bumi Resources, long a concern for investors.

 Bumi said that “an area of focus” would be the “extensive” development funds of Bumi Resources, most of which were written down to zero at the end of last year, along with one potential mining project held by another subsidiary, Berau Coal Energy.

“We have no knowledge and will await further information before we can comment further,” said Dileep Srivastava, Bumi Resources’ investor relations spokesman.

Bumi, the most traded British mid-cap stock on Monday at 8 times its 90-day daily average, was down 32 percent at 0930 GMT, at 133 pence, off an earlier all-time low of 119.5 pence.

Shares in other Bakrie Group firms also fell on Monday on investor concerns that Bumi’s financial problems would affect related companies. Property developer Bakrieland Development and energy firm Energi Mega Persada both slid 12 percent, while plantation firm Bakrie Sumatera fell 9 percent.

“It’s a major development for Bumi Plc, which now has Samin Tan in control. People have been wondering whether these national coal assets have been mismanaged,” said Jemmy Paul, an equity fund manager at Sucorinvest Asset Management in Jakarta, who manages over $200 million.

But some saw the move as potentially positive.  

“We see this investigation as a positive development, although we feel it does have the potential to bring to light some gross [and potentially criminal] mismanagement of funds which may turn off shareholders in the short-term,” analysts at Liberum said.

“Clearly, given PT Bumi’s high debt levels, the repatriation of funds and focus on core coal mining business is critical.”

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Bumi Starts Urgent Probe of Alleged Financial Irregularities

Bakries Want Rothschild to Leave the Board of Bumi Plc

British financier Nathaniel Rothschild, left, has criticized the
 management and corporate governance at Bumi Resources,
 the Indonesian coal company he is trying to transform into a
 top-tier global miner, the Financial Times reported on
Thursday. (Antara Photo/File)

Freeport to Pay Higher Royalties After Months of Contract Talks

Jakarta Globe, Tito Summa Siahaan,  July 23, 2012

This 2009 file photo shows local parliament members walking inside a tunnel
 of the Freeport mining company. After months of negotiations, Freeport Indonesia
 has agreed to raise its royalty payment to the government, according to a statement
 from Coordinating Minister for the Economy Hatta Rajasa. (AFP Photo/
 HUSYEN OPA)   

       

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Freeport Indonesia has agreed to raise its royalty payment to the government, according to a statement from a top economic minister on Monday.

The announcement represents progress in the government’s protracted renegotiations with Freeport Indonesia, a subsidiary of US based mining giant Freeport-McMoran Copper & Gold, who was one of the first foreign companies to invest in Suharto’s New Order Regime in the 1960’s.

Freeport operates the world’s biggest gold and second-biggest copper mine in the restive province of Papua.

“[Freeport] is willing to increase the royalty,” said Coordinating Minister for the Economy Hatta Rajasa. He did not, however, specify the percentage increase.

In February, the government created a team to renegotiate older mining contracts that generally asked for smaller royalties. And in March, Indonesian authorities announced a new law cutting maximum foreign ownership in mining companies from 80 percent to less than half.

Both actions were a bid to keep a larger portion of revenues from the country’s vast natural resources, and increase the participation of local entities in the mining sector.

At present, Freeport pays a 1 percent royalty to the government on its total gross sales of gold.

A 2003 government regulation requires mining companies to pay a royalty of 4 percent for copper exports, 3.25 percent for silver, and 3.75 percent for gold. But Freeport’s contract was established before 2003, and the Indonesian legal system does not recognize the principle of retroactivity.

Terms agreed to in contracts signed before the 2003 law, in other words, take precedent.

“Now, [the royalty] is only at 1 percent, it is very small,’’ Hatta said in February.

Royalties have been just one issue on the negotiating table, however. Government revenue, requirements for miners to process raw materials in Indonesia and divest a stake to local owners, the size of mining concession areas and the use of local content in operations have also been up for discussion.

On these matters, Hatta said Freeport was willing to build a smelter to comply with the government requirement to process ore minerals locally. He also said the mining giant was willing to give up some of its land due to a reevaluation of its mining concession area and increase the participation of the local government and regional companies.

Hatta, who is chairman of the National Mandate Party (PAN), a close ally to President Susilo Yudhoyono’s Democratic Party, also said Freeport-McMoran had agreed to sell part of their interest in their Indonesian operation.

“[Freeport Indonesia] agreed to divest a stake, but there’s no agreement on the 51 percent that we requested,” Hatta Rajasa told reporters on Monday.

Details on other terms of the IPO, including the time frame, have not been shared.

Freeport Indonesia’s president director, Rozik B. Soetjipto, had said early this month that the miner was willing to increase its royalty, but asked the government to reduce the amount it must pay in corporate income tax.

Indonesian companies typically pay a 25 percent income tax, while Freeport pays 35 percent.

Additional reporting by Agence France-Presse

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