* Hakim is 2nd CEO in a row with military background
* Freeport faces narrowing window for $18 bln expansion
* Ore exports could stop in January under existing rules
* January deadline could hit two-thirds of Grasberg output
By Fergus Jensen
JAKARTA, Dec 16 Chappy Hakim, a retired air
force chief who says he knows next to nothing about mining, now
heads Indonesia's biggest copper producer, entrusted to use his
connections to guide it through regulatory uncertainty to a
renewed contract for its mine.
Picking another former military officer to lead the local
unit of U.S. mining giant Freeport-McMoRan underlines
how pivotal political ties can be in Indonesia, where the firm
got its start nearly 50 years ago helped by close relations to
late autocratic President Suharto.
At stake for Freeport is an $18 billion investment to expand
its Grasberg mine - one of the world's biggest deposits of gold
and copper - in the eastern Indonesian province of Papua. A
government deadline in January to end ore exports from the
country also threatens two-thirds of the mine's copper output.
"Freeport is more politics than business," Hakim told a
recent media briefing.
"Right now we are working hard to negotiate with the
government ... The political aspect has become very heavy here,"
said Hakim, who was appointed last month as Freeport Indonesia's
new chief executive.
Hakim, 69, a keen saxophonist who holds Indonesian skydiving
records, first saw the area where Freeport's giant Papua mine is
located from the pilot's seat of a C-130 Hercules in the 1970s.
And while he may know little about mining and finance, Hakim
said his experience leading the air force and later an air
safety panel after a string of deadly plane crashes would help
him with both human resource management and mine safety issues.
Grasberg has had several fatal accidents that disrupted
operations and strained union relations, and in 2013 a tunnel
collapse killed 28 workers, raising worries about its
underground expansion plans. (reut.rs/2hhmTiM)
Hakim's appointment was made in consultation with the
government, Freeport said, and comes as the company fights to
win an extension on its mine beyond 2021.
Freeport needs to sign off in late 2017 on the $18 billion
plan to transition Grasberg from open pit to underground mining,
and it wants the contract renewed before committing the money.
"One of (Freeport's) priorities is clearly to have someone
on board who supposedly has the ear of the government," said
Bill Sullivan, a foreign legal counsel and expert on Indonesian
Freeport faces a narrowing window to make a new deal on
taxes, royalties, divestment and a second smelter, before it
develops what would be the world's biggest underground mine,
Indonesia has given mixed signals on negotiations, however,
and it's not clear if Freeport will be able to win a contract
extension next year.
Regulations stipulate contracts can be renewed only in the
last two years before they expire, but Hakim said Freeport
needed "several dispensations" to justify its investment.
"We have no choice because we have spent so many billions of
dollars on the contract ... and we'll be really devastated if we
stop," he said.
Hakim also noted that existing rules forbid Freeport from
exporting copper concentrate after Jan. 12, 2017, part of an
effort to transform Indonesia into a producer of finished goods
from a supplier of raw materials.
About a third of Freeport's daily 220,000 tonnes of copper
ore from Grasberg goes to its domestic smelter in Gresik, East
Java, with the rest exported as concentrate.
Jakarta has said it may revise the deadline on metals
processing, but nothing has been announced.
Freeport, which employs 32,400 workers in Indonesia, has
said it does not believe Jakarta will ban all exports from 2017
given the harm it could do to Southeast Asia's biggest economy.
Hakim's predecessor, Maroef Sjamsoeddin, also a former air
force and intelligence officer, stepped down in January after
being caught up in a scandal. The company said he resigned for
(Reporting by Fergus Jensen; Additional reporting by Wilda
Asmarini; Editing by Tom Hogue)