Papua Asks Freeport Indonesia For Help Buying Stake in Mine

Jakarta Globe, Reva Sasistiya, March 16, 2010

Papua’s provincial government wants to receive a larger share of the royalties from the massive Grasberg gold and copper mine to help it buy a 9.36 percent stake in the mine’s operator — PT Freeport Indonesia.

Agus Sumule, an economic adviser to the Papua governor, said on Tuesday that Papua planned to fund the purchase of the stake, worth an estimated $1 billion, through bank loans. A greater share of the royalties would strengthen Papua’s balance sheet and help it raise the money, he said.

“We want to boost our fiscal performance before we apply for the loans,” Agus said.

Papua currently receives 6 percent of the taxes and other financial obligations that Freeport Indonesia, the domestic subsidiary of US-based Freeport-McMoRan Copper & Gold, pays to the central government. Last year, Freeport Indonesia paid $1.4 billion to central government. Papua received $84 million.

Agus said Papua’s provincial government had proposed to the Finance Ministry and the House of Representatives that its share of the revenue be increased from 6 percent to 30 percent.

Should the proposal be approved, Papua could start paying for the coveted stake in installments, he said.

The value of the stake has been estimated at $1 billion, but it fluctuates according to Freeport-McMoRan’s share price, Agus said.

“To acquire the stake we need a lot of money,” he said.

Meanwhile, Agus said the Papuan government had not been approached by state-owned nickel miner PT Aneka Tambang (Antam), or the central government, about Papua and Antam jointly buying the Freeport stake.

In December, Investor Daily Indonesia, quoting Antam president director Alwyn Syah Loebis, reported that Papua might join forces with Antam to buy the Freeport Indonesia stake.

However, Agus said on Tuesday that Papua was more interested in buying the stake itself.

Earlier this month, Papua signed a memorandum of understanding with Freeport Indonesia about acquiring the stake. Freeport Indonesia spokesman Budiman Moerdijat said at the time that Freeport hoped to sell the stake by the end of this year.

The central government already owns a 9.36 percent stake in Freeport Indonesia. Deputy State-Owned Enterprises Minister Sahala Lumban Gaol said earlier this month that the central government was reviewing a plan to increase its stake and had submitted a proposal to Freeport Indonesia.

“The government will look thoroughly at the cost and benefits of the plan before making any decision,” Sahala said, adding that it had yet to decide how big an additional stake it wanted to buy.