March 3, 2017 / 12:05 PM / 2 years ago

Indonesia won't budge on divestment rule for Freeport: minister

JAKARTA (Reuters) - Indonesia will not back down from new rules requiring Freeport-McMoran to divest a majority stake in its local unit, Energy and Mineral Resources Minister Ignasius Jonan said, in a dispute over rights to the world’s second-biggest copper mine.

Trucks operate in the open-pit mine of PT Freeport's Grasberg copper and gold mine complex near Timika, in the eastern region of Papua, Indonesia on September 19, 2015 in this photo taken by Antara Foto. REUTERS/Muhammad Adimaja/Antara Foto/File Photo

Freeport’s exports of copper concentrate from its Grasberg mine have been at a standstill since mid-January, when Indonesia introduced rules that are intended to improve revenues from its resources and create jobs.

The dispute has threatened to cut government revenues and unsettle business sentiment in Southeast Asia’s biggest economy at a time when President Joko Widodo’s reform agenda has been buffeted by political instability and social tensions surrounding gubernatorial elections in Jakarta.

The new rules require the U.S. company to give up its 1991 contract before it can resume exports of copper concentrate. They also require that Freeport divest a 51 percent stake in its Indonesian unit, pay more taxes, and build a second copper smelter.

The government was willing to “sit down and have more beneficial solutions for both sides,” Jonan told Reuters in an interview late on Thursday, referring to discussions with Freeport on the new rules.

However, “the 51 percent is mandatory,” he said.

“Freeport has been here for 50 years,” he said, “doing business in the soil of Indonesia.”

The president had proposed that Freeport continue operating the Grasberg mine, while state-owned pension funds would provide finance for the stake, Jonan said.

“The government will be the silent partner.”

No time frame has been set for the divestment.

Earlier this week, Freeport Chief Executive Richard Adkerson said Indonesian ministers had been “aggressive” and that the new regulations were “in effect a form of expropriation”.

Adkerson said the attempts to enforce the new rules were in violation of Freeport’s contract and he warned that if there were no resolution by mid-June it could go to arbitration.

Freeport’s exports and output have been paralyzed by the dispute. The Phoenix, Arizona-based company this week slashed its Grasberg copper mining target and shelved plans to invest $1 billion a year in a long-term underground expansion.

Jonan denied that relations between the two parties had deteriorated and said both hoped to conclude negotiations as soon as possible.

While the government was “more than ready” to go to arbitration, Jonan said: “If we can sit down and discuss this amicably, it would be better.”

Union representatives say more than 1,500 workers have been sent home, work has ground to a halt, and unprocessed ore has begun to pile up.

“We hope the government and the company can reach an understanding. We don’t want this to be a drawn-out process,” said Aser Gobai, head of the workers union in Mimika regency.

The company has brought in billions of dollars of investment to Indonesia’s easternmost Papua province, and employs thousands of its people.

Copper prices moved above $6,000 a tonne to 20-month highs on the London Metal Exchange in mid-February on the back of Freeport’s diminished output and a strike at BHP Billiton’s Escondida mine in Chile.

Editing by Ed Davies and Dale Hudson

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