(Corrects spelling of U.S. vice president's name, paragraph 8)
By Fergus Jensen
JAKARTA, April 12 Losses amounting to hundreds
of millions of dollars appear to be pushing the Indonesian
government and mining giant Freeport McMoRan to resolve
a row that has crippled operations at Grasberg, the world's
richest copper mine, for three months.
Freeport says it has lost revenue of about $1 billion since
the export of copper concentrate from Grasberg was halted on
Jan. 12 under new rules issued by the government. The government
has lost millions of dollars in royalties and is worried about
layoffs and a slowing economy in the restive Papua region, where
the giant mine is located.
"There's a lot of grandstanding in public – that, with our
economy being close to a $1 trillion a year now, Freeport is a
small matter," said a senior Indonesian government official, who
estimated the lost royalties and taxes from the mine at about $1
billion a year.
"But truth be told, a $1 billion a year reduction in fiscal
revenue is a lot," said the official, who spoke on condition of
Indonesia halted Freeport's copper concentrate exports under
new rules that require the Phoenix, Arizona-based company to
adopt a special license, pay new taxes and royalties, divest a
51 percent stake in its operations and relinquish arbitration
Freeport threatened in February to take the dispute to
arbitration, saying the rules were "in effect a form of
But now, Indonesia has promised to allow Freeport to export
its copper concentrate once again, while negotiations continue
over the next six months on contentious issues, including on
divestment, economic and legal protection and smelting
The compromise comes ahead of a visit to Indonesia by U.S.
Vice President Mike Pence next week. Pressure to resolve the row
could also come from Freeport's third-biggest shareholder,
activist investor Carl Icahn, who has been appointed a special
adviser to President Donald Trump.
For Indonesia, tensions at Grasberg could hamper its efforts
to calm the Papua region, where a low-level insurgency has
simmered for decades. The mine's social and environmental
footprint also remains a source of friction.
Papua's GDP growth is expected to drop to 3 percent this
year due to the Freeport dispute, down from 9.21 percent in
2016, according to the Papua branch of Indonesia's central bank.
A slump in Papua's economy could aggravate tensions with
Jakarta, complicating efforts by President Joko Widodo to
enforce policies to extract more from its natural resources.
"When there is a crisis at Freeport, it will send major
ripples through Papuan society," said Achmad Sukarsono, an
Indonesian expert at the Eurasia consultancy.
In Timika, a sprawling town of around 250,000 people and a
supply hub for Grasberg, the Freeport dispute has hit
businesses, caused a slump in house prices and stalled credit,
Mastael Arobi, who owns a car rental business there, has cut
his fleet by two-thirds because of slow business and is worried
about the interest he pays on loans.
"We are half-dead thinking about repayments," he said.
Transport operators in Timika had similar complaints, with a
motorcycle taxi driver saying it was hard to make even a third
of the up to 300,000 rupiah ($22.50) he used to make each day.
"Since these furloughs and layoffs began we have stopped
providing credit to Freeport workers," said Joko Supriyono, a
regional manager at Bank Papua in Timika, who said ATM
transactions had declined by around two-thirds since January.
Freeport, which employs more than 32,000 staff and
contractors in Indonesia, has now "demobilised" just over 10
percent of its workforce, a number expected to grow until the
dispute is resolved.
Persipura, the main soccer club in Papua and one of
Indonesia's most decorated teams, announced last month that
Freeport, its top sponsor, had stopped its funding.
Indonesian Vice President Jusuf Kalla said in a recent
interview that while he did not anticipate political pressure,
Washington should not politicise the Freeport issue.
Another Indonesian government official said moves to allow
Freeport to export temporarily were aimed at showing that the
government is willing to find a solution, and to send a positive
message, especially to foreign investors, who are watching the
"We are not changing our stance. Our basic stance on 51
percent divestment, our demand for smelters - all that is still
there. But in negotiations, you should give a little to assure
the other side that we are still open to some options," said the
The two sides had opted for a temporary solution to break a
deadlock in issues that "cannot be resolved quickly," said
Bambang Gatot, Director General of Coal and Minerals in the
A spokesman for Freeport Indonesia declined to comment on
the warming ties with the government.
A senior Freeport McMoRan executive said last week the
company was awaiting details of a temporary export permit from
the Indonesian government that would allow it to ramp up
($1 = 13,330 rupiah)
(Additional reporting by Hidayat Setiaji, Wilda Asmarini and
Kanupriya Kapoor in JAKARTA and Samuel Wanda in TIMIKA; Writing
by Ed Davies; Editing by Raju Gopalakrishnan)