Freeport's Cosy Indonesia Govt Ties Not Helping End Strike

Freeport still beat Wall Street estimates in its third quarter results on Wednesday, but said production and sales were adversely affected by the strike, to the tune of 70 million pounds of copper and 100,000 ounces of gold. That’s $165 million worth of gold alone at today’s prices .

Tarnished gold

One of Suharto’s first laws after rising to power in the mid-1960s was to allow Freeport into Papua, then a new province of Indonesia. In 1991, a new contract was signed to tap the huge riches of Grasberg mountain.

In a sign of how close relations were with the government’s upper levels, several of its most powerful officials attended the huge party in Jakarta to celebrate the 1991 deal. The entertainment included an impersonation of Elvis Presley by the now chairman of Freeport, James “Jim Bob” Moffett.

These days, however, politicians regularly sound off against foreign investment and there is a clear split between those who are pro-international capital and those who favour not just subsidies and protectionism, but resource asset expropriation — a divide that reaches even to the cabinet.

The new energy and mining minister, Jero Wacik, inaugurated on Wednesday, said one of his first priorities was to renegotiate “too unfair” production sharing contracts, though he did not name any company.

“Maybe now, because there is so much criticism with regard to the contract of work, and not just Freeport ... by some of the politicians and NGOs, the government doesn’t want to show its close relations with foreign investors, especially the mining industry,” said one Indonesia mining consultant.

“I don’t think there is a special relationship between Freeport and the government. In the past yes, but that sometimes can be a burden for Freeport rather than a positive. People can be suspicious that a previous contract was based on relations at that time, and too good for Freeport,” he said.

Handouts

Security consultants say it is essential for resource firms to get on better with local communities which often demand a share of profits that are kept by the central government.