Freeport extortion allegations rock Indonesian politics

Allegations that House of Representatives Speaker Setya Novanto sought to extort shares from mining giant Freeport Indonesia has rocked the country’s political establishment.

Energy and Mineral Resources Sudirman Said claimed he has evidence that Setya demanded a Freeport stake on behalf of President Joko Widodo and Vice President Jusuf Kalla.

The government has demanded the company divest some of its shares to comply with Indonesian law.

Jokowi, as the president is universally known, is reportedly angry that Setya apparently negotiated the renewal of the contract to allow Freeport to continue its operations in Papua.

Setya Novanto was already the focus of public criticism after he met US presidential hopeful Donald Trump in New York in September. At the end of his speech, Trump briefly introduced Setya, asking him what Indonesians thought of him: “Do they like me in Indonesia?”

To which Setya replied: “Yes, very much.”

Setya made his name as a successful businessman long before he started his career as a politician, although not without controversy.

In 1999, he was implicated in a scandal involving Bank Bali, which centered on the transfer of Rp546 billion from that bank to PT Era Giat Prima (EGP), a company he controlled, but he was cleared by a court.

More recently, Setya has been implicated in a number of graft cases handled by the Corruption Eradication Commission (KPK), but his status has remained as a witness.

Setya asked Freeport for “11 to 9 percent, saying he would give [11 percent] to the president and 9 percent to the vice president,” Sudirman charged.

The attempted shakedown reportedly took place over the course of three meetings between the legislator and Freeport Indonesia executives in June.

Shakeup coming?

Other top politicians may also be dragged into the bribe attempt, a source said. That reportedly has triggered major behind-the-scenes movement in Indonesia’s political establishment as it seeks to cope with the new way of doing business.

Junimart Girsang, a deputy chairman of the council, confirmed that Sudirman filed the complaint, including submitting wiretapped phone conversations that purportedly quoted an unnamed lawmaker.

Although neither the minister nor the House would reveal the identity of the legislator, the transcript was leaked to local media, which reported that it was Setya, a senior member of the Golkar Party as well as being speaker of the house.

“We received concrete evidence in the form of a recorded conversation for us to examine,” Junimart told reporters.

He added that Sudirman had said “there are several people in the conversation including a very prominent Indonesian businessman.”

Media reports quoted said in the taped conversation, the unnamed legislator approached Freeport officials, claiming he represented the president and the vice president.

Under government regulations pushed through in 2014 on mineral and coal-mining business activity, Freeport must divest 10.64 percent of its shares to the government. After accepting the offer, the government has 90 days to negotiate with Freeport.

IPO for Freeport

Freeport Indonesia is expected to be allowed to conduct an initial public offering to comply with the mandatory divestment regulation imposed by the government. The company’s spokesperson Riza Pratama said divesting shares through an IPO would be more transparent and accountable.

It is currently 90.64 percent owned by Freeport McMoRan of Phoenix, Arizona and 9.36 percent by the Indonesian government. To meet the government’s requirement, the company must offer another 20.64 percent of its shares to Indonesian shareholders.

According to the current schedule, Freeport Indonesia should have divested a further 10.64 percent of its shares in October.

The mining company’s export permit expired in July. The permit is necessary for the company to continue shipping its partly processed copper concentrate despite the government’s implementation of a ban on raw mineral exports in January 2014. Due to a loosening of the

export ban, export permits for raw minerals are now possible as long as the company in question shows a commitment to making progress on smelter developments and they pay export tax.

The company currently produces approximately 2.5 million tonnes of copper concentrate per year. While the export permit is extended, Freeport Indonesia is currently under the spotlight following its attempt to seek certainty over its operation after the termination of its contract in 2021. Critics have argued that its poor progress in smelter development was also driven by uncertainty regarding its operation after 2021.

The export tax is set at a maximum of 7.5 percent, depending on the progress of smelter development, which is calculated based on the amount of money spent. An export tax of 7.5 percent is imposed on companies whose disbursement is at 0 to 7.5 percent of their total investment in downstream facilities.

Freeport Indonesia has been the sharp target of critics from Indonesian officials and environmental activists.

Indonesia’s coordinating Maritime Affairs Minister Rizal Ramli said although Indonesia was blessed with abundant mineral resources, unfortunately, all of those resources, except coal, are controlled by foreign powers through a work contract.

The minister said a mining site currently controlled by Freeport Indonesia in Papua was one of the three biggest copper and gold mines in the world.

“However, people in Papua are very poor because Freeport pays only 1 percent in royalties for the gold it exploits. Across the world, gold royalties are around 6-7 percent,” Rizal Ramli said.

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