Indonesian police stand guard at the open-pit mine of PT Freeport's Grasberg copper and gold mine complex near Timika, in the eastern province of Papua, Indonesia. Photo: Antara Foto via Reuters /Muhammad Adimaja
Indonesian police stand guard at the open-pit mine of PT Freeport's Grasberg copper and gold mine complex near Timika, in the eastern province of Papua, Indonesia. Photo: Antara Foto via Reuters /Muhammad Adimaja

It’s done. After two years of often fraught negotiations – and a last-minute environmental hiccup – the government and US mineral giant Freeport McMoRan Copper & Gold (FCX) have finally concluded an agreement effectively nationalizing Indonesia’s most prized mining asset in the mountains of easternmost Papua.

Issuing subsidiary PT Freeport Indonesia (PTFI) with a special mining permit (IUPK) to replace the firm’s current contract of work was the last step towards state-owned PT Indonesia Asahan Aluminium (Inalum) taking a 51.2% controlling interest in the Grasberg, one of the world’s most profitable gold and copper mines.

Following a well-beaten path, FCX chairman Richard Adkerson flew in from his Phoenix, Arizona, headquarters to sign off on the country’s most-watched business deal, an “historic moment” as President Joko Widodo called it, which at one point seemed destined for the arbitration court.

“Control” has always been the operative word because that’s what it means for Indonesians who believe, rightly or wrongly, Freeport always had its way with president Suharto’s New Order regime and was trying to do the same in the new post-1998 democratic era.

Haunted by its close association with Indonesia’s authoritarian past, the firm earned the title of Corporate Enemy No 1 to a point where it could do nothing right, even when its combative chairman, Jim-Bob Moffett, stepped aside three years ago.

Freeport McMoran CEO Richard Adkerson (R) and Minister of Energy and Mineral Resource Ignasius Jonan (L) after signing a Sales and Purchase Agreement (SPA) on September 27, 2018. Photo:AFP via NurPhoto by Aditya Irawan

Constantly under the critical scrutiny of human rights and environmental activists and an irrationally hostile media, some of Freeport’s Indonesian employees were even ostracized by their closest friends. It also became a target for vested interests and corrupt officials.

As much as it became an annoying distraction, Widodo was determined to deliver the Grasberg before next April’s presidential elections with rival candidate Prabowo Subianto reviving his bombastic message that Indonesia has become a slave to foreign interests.

In Indonesia’s efforts over the past decade to take ownership of all of its major mining and oil and gas assets, the goal has always been about sovereignty and national pride. Little has been said about the cost and the loss of revenues over the short and medium term.

It has now been 82 years since Dutch geologist Jean Jacques Dozy stumbled on the original Ertsberg deposit, a black promontory with tell-tale greenish coloring, while climbing Mt Carstensz, the country’s highest peak in Papua’s Central Highlands.

But it wasn’t until 1960 that Freeport geologist Forbes Wilson found Dozy’s report in a dusty Dutch archive and convinced his employers to mount an expedition into Papua’s jungled interior to confirm the rocky outcrop was in fact a huge copper deposit, lying in the shadow of a rare equatorial glacier.

Seven years later, much to Suharto’s gratitude, the then New Orleans-based company became Indonesia’s first big foreign investor, eventually exhausting the Ertsberg and then discovering the nearby Grasberg as it was preparing to pull out in 1988.

A protestor holds a placard at the PT Freeport Indonesia headquarters calling for the closure of its mine in Papua province, in Jakarta. Photo: Reuters/Beawiharta

With Suharto’s downfall in 1998 came calls for the government to take a harder line with Freeport, something the firm failed to recognize until it initiated talks for a contract renewal — and discovered it had few friends left and a lot less influence in high places.

In the end, Inalum paid a bargain-basement US$3.8 billion to raise the government’s stake from 9.36% to 51.23% stake in a deal concluded last July, securing the money through a global bond issue after a consortium of 11 foreign banks backed out, reportedly because of an issue over guarantees.

Bankers believe Inalum had begun looking at a bond issue months beforehand, but president-director Budi Gunadi Sadikin explained the turn-around by noting that the syndicated loan was costlier and would have involved the payment of a principal installment.

While it may have a majority stake, just how much actual control Inalum will enjoy is still in question. The American parent will continue to run the mining operation itself, now in the throes of conversion from an open pit to a vast underground venture that will still be producing late into the century.

But little has been said about publicly about who will wield managerial control, once described by Adkerson as a deal-breaker because of concerns over potential breaches of the Foreign Corrupt Practices Act, which applies to all US firms abroad.

In what appears to be a favored outcome for Freeport’s parent, former PTFI executive director Tony Wenas becomes president-director at the head of a board which also comprises current members Achmad Ardianto and Robert Schroeder and PTFI’s chief operating officer Mark Johnson.

Former PTFI executive director Tony Wenas in a file photo. Photo: Facebook

Two other Indonesians on the board are Orias Petrus Moedak, Inalum’s chief financial officer, and Jenpino Ngabdi, the well-regarded president director of state-owned Danareksa Securities, who is wired into the market network of investment and corporate bankers.

The new board of commissioners includes Adkerson, FCX chief financial officer Kathleen Quirk, ex-PTFI boss Adrianto Machribie, former Anti-Corruption Commission (KPK) vice-chairman Amien Sunaryadi, now also chairman of oil and gas regulator SKK Migas, and Hinsa Siburian, a retired general and former head of the Papua regional command.

Siburian, 59, is an interesting choice given his close relations with chief maritime minister and presidential adviser Luhut Panjaitan, who took a hard line towards Freeport and at one point told this correspondent: “Why don’t we just wait till 2021 and the mine will be ours.”

Both are Indonesian Special Forces (Kopassus) officers and both are native bataks from North Sumatra. Siburian started his military career as a sergeant, before being accepted for the armed forces academy and emerging top of his class in 1986.

Now that PTFI is under effective Indonesian control, it will likely come in for close scrutiny from the tough-minded State Audit Agency (BPK), which may look askance at the annual $23 million payment made last year to the police and military guarding the mine.

Security Exchange Commission (SEC) filings show the “supplemental income” covers infrastructure costs, food, fuel, travel, vehicle repairs, community programs and other incidentals like phone cards, but the BPK will point out it is not an expense incurred by other state enterprises.

Freeport has had an Indonesian president-director since 1973, but the position had been vacant since the eighth incumbent, retired air force chief Chappy Hakim, resigned in early 2017 after only three months in the job, unable to deal with conflicted loyalties.

Former PTFI president-director Chappy Hakim. Photo: Facebook

Others have run into problems too. The sixth president-director, respected former public works minister Rozik Soetjipto, who held the position between 2012 and 2015, became increasingly irritated at having to report to Phoenix on even minor issues.

Moffett, for his part, was annoyed at Soetjipto for failing to defend Freeport against the government in the Indonesian media, although it would have been a losing battle given the uncompromising attitude of most Indonesian journalists.

As it was, Soetjipto’s successor, former National Intelligence Agency (BIN) deputy director Maroef Sjamsoeddin, lasted barely a year after he was hand-picked by Moffett in the belief he could make things happen in getting Freeport’s contract extended beyond 2021.

He resigned in January 2017 after clandestinely taping a conversation with parliament speaker Setya Novanto and oil kingpin Riza Chalid in which the pair used the President Widodo’s name to seek a payoff for the contract renewal.

The so-called “Papa Wants Shares” scandal died away, but while Chalid emerged unscathed, Novanto was subsequently sentenced to 15 years’ imprisonment last April for taking millions of dollars in kickbacks and bribes in the roll out of the Government’s electronic identity card program.

Indonesia’s former House of Representatives Speaker Setya Novanto in a wheelchair before a hearing on his corruption charge. Photo: Andalou via AFP/ Eko Siswono Toyudho

Marouf is the younger brother of ex-deputy defense minister Sjafrie Sjamsoeddin, a partner in long-time Suharto confidante Bob Hasan’s PT Harmoni Sinergi, a company which provides catering and security services at the Grasberg mine.

Inalum’s new management will likely want to review the contracts held by Harmoni Sinergi and other firms, some also owned by political heavy-hitters, who handle about 75% of the annual US$1.35 billion in supplies that come from domestic sources.

It will also have to accept ultimate responsibility for safe-guarding the Grasberg, where armored buses still transport Freeport workers to the high-altitude Tembagapura mining camp because of frequent sniper attacks by suspected Free Papua Movement rebels.

Then there are contentious environmental issues, including the Environment Ministry’s demands that Freeport change the way it has been managing its tailings, or rock waste – something the US owners have been heavily criticized for in the past and which will now become an Inalum problem.

Raised during the final phase of the talks, it proved to be a difficult sticking point, drawing the environment and energy and mineral resources ministries into a row that caught the attention of nationalist politicians and severely tested Widodo’s patience.

Freeport McMoran Copper & Gold workers wait for their bus at the Gorong Gorong bus station in Timika, Papua province. Photo: Reuters/Muhammad Yamin 

Environment Minister Siti Nurbaya Bakar is a member of the ninth-ranked National Democratic Party (Nasdem) of media tycoon Surya Paloh, whose rocky relationship with Widodo threatens to sow discord into his six-party ruling coalition ahead of the elections.

In the end, the US firm agreed to pay US$31.8 million for environmental damage incurred between 2008 and 2013, a long way from the extraordinary US$13 billion the BPK initially claimed the company owed in so-called “losses to the state.”

Under its new owners, Freeport Indonesia will have to come up with an extended roadmap to improve or change the management of an eventual three billion tonnes of riverine tailings across a lowland deposition area covering 230 square kilometers.

Keeping Freeport’s house in order will remain a challenge. Only recently, the president warned Papua Governor Lukas Enembe, another Paloh ally, about allowing private interests to secure back-door control of the 10% stake the province will have in the newly-restructured venture.

It was a telling reminder of the unhappy bees who missed out on getting a share in the deal of the century and continue to circle the honey pot. It may well be that the final chapters in the rich history of the Grasberg have yet to be written.

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