P

T Freeport Indonesia, a subsidiary of US-based mining giant Freeport-McMoRan Inc., deserves a strong rebuke from the government and the House of Representatives for its utter lack of commitment to developing a copper smelter to comply with the 2009 Mining Law.

The government had compromised in early 2014 by lowering the purity levels of copper, nickel, bauxite and other minerals to fall below those stipulated in the law to allow them to continue mineral exports after the 2014 deadline for the ban of unprocessed mineral exports.

The compromise was meant to prevent substantial worker layoffs and sudden falls in export earnings and state revenues for the central and regional governments, from royalties and other taxes.

But the export permit, issued during the transition period until 2017 when a total ban will be slapped on unprocessed minerals, is tied to higher export taxes of 20 to 60 percent, royalty payments and clear timetables for the development of smelters in the country.

So far, Papua-based Freeport Indonesia, the largest producer of copper and gold in the country, has failed to show any concrete progress in the development of its US$2.3 billion smelter project with an annual capacity of two million tons.

The company only reached a memorandum of understanding with state-owned PT Petrokimia Gresik on its plan to lease an 80-hectare plot of land in Gresik, East Java, for the plant project.

It is rather impossible for Freeport to complete the plant within the next three years, as the required feasibility study has yet to be made and dozens of other permits have yet to be obtained from the central and local governments.

The House was especially irked by Freeport'€™s plan to build its smelter in the Petrokimia Gresik industrial complex in East Java, a corporate action seen as ignoring the interests of the Papuan people.

But Freeport'€™s plan is understandably more commercially viable because the smelter project requires at least 600 megawatts of power and other supporting infrastructure that is unavailable in Papua. Gresik can easily fulfill those requirements. Petrokimia Gresik can also process sulfuric acid, a byproduct of the smelter.

The government should be forceful in ensuring that Freeport develops its smelter, but given the tight schedule, the company could be allowed to go ahead with its original plan to build the smelter in Gresik but with stricter timetables for each stage of construction and much higher export tax, as stipulated in the January 2014 regulation.

Freeport-McMoRan has a big stake in Papua as its Indonesia concession holds 30 billion pounds of proven and probable copper, 29.8 million ounces of gold and 308.5 million ounces of silver. Its mining operations in Papua have been highly profitable due to low (open pit) mining costs.

Hence, the only alternative for Freeport is pushing ahead with the smelter project, otherwise it will lose those huge mineral reserves if its mining license is not renewed after 2021.