The stipulations also say that if the divestment process was not reached then the share offering is carried out in the next year.

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1 Share divestment of foreign mining business again becomes attention of many parties. The appearance of 'struggle' for acquiring share between central government and provincial government and lastly discourse on buying share through state owned enterprises is increasingly heat news release on various mass media. Never ending push pull? On February 21, 2012 President Susilo Bambang Yudhoyono signed Government Regulation (PP) No.24/2012 amended Government Regulation No. 23/2010 on realization of minerals and coal mining business undertaking. PP No.24/2012 says: Foreign company that becomes a holder of mining license after 5 years production must divest its share gradually so that in the tenth year at least 51 percent of its share owned by Indonesian participants. Its stage of divestment is 20 percent at the sixth year of production then 30 percent in the seventh year, 37 percent in the eighth year, 44 percent in the ninth year and 51 percent in the tenth year. Indonesian participants meant consists of government, Provincial government or, regency/municipal government, state owned enterprises (BUMN), regional owned enterprises (BUMD), or national private business entities. The stipulations also say that if the divestment process was not reached then the share offering is carried out in the next year. In addition, Article 98 in the regulation says in case of the business capital of the company increases, the share of Indonesian participants may not be diluted to be smaller than total share in accordance with the stage of obligation to divest. 1 / 6

2 Foreign mine violates the divestment stipulations will be imposed with administrative sanction beginning from written notice, temporary termination until revocation of license. The regulation becomes effective on the date of its promulgation, February 21, 2012 and is not retroactive. The regulation is also applicable to all contracts that get extension. Thus it is clear enough that the regulation obliges foreign mining companies to divest 51 percent of their share for domestic entities. Unfortunately the regulation is not retroactive, whereas at this moment there are 40 contracts of works operating in Indonesia and they have not yet imposed with divestment obligation. Nevertheless the government still has an opening for compelling the obligation to the foreign mining companies. "Later it is inserted at renegotiation point;' said Director General of Mineral and Coal of the Ministry of Energy and Mineral Resources, Thamrin Sihite, at various opportunities. Pursuant to the mandate of the regulation, Thamrin will attempt for the divestment as much as 51 percent. "So far they've got much profit too;' he said. In Article 97 of PP No.24/2012 it is regulated that every foreign mining undertaking IUP holder after five years in production is mandatory to divest 51 percent of its share to Indonesian share-holders gradually. In sequence its divestment stages are as follows: at the sixth year 20 percent then in seventh it increases to 30 percent, at the eighth year becomes 37 percent, at the ninth year 44 percent and at the tenth year is full 51 percent. The regulation also explains that for divesting share of foreign mining company it should be offered to the government first. If the government is not interested in, then it is offered to provincial governments or regency/municipality government then to state owned enterprises. 2 / 6

3 "If state owned enterprises and region owned enterprises aren't willing to purchase, the share is offered to the national private business entities through tender." Although it is clear enough that was conveyed by the government but, the issuance of the regulation is reaping contra among mining companies. One of them is PT Freeport Indonesia; a subsidiary company of Freeport McMoRan Copper & Gold Inc. based in the US seems to be reluctant to divest its share in accordance with the wish of the gov-ernment of Indonesia. Like the one that is reviewed in an article of financial business kompas.com, this mining company based in the country of Uncle Sam stated that its company will not bow down to the stipulation of the divestment as much as 20 percent as is mandated by the new regulation on mining in Indonesia. Its reason, Freeport McMoRan has had contract of work (CoW) in operating Grasberg mining and gold mine in Indonesia. In the CoW royalty payment or tax tariff to the government of Indonesia have been agreed upon. This contract according to Freeport McMoRan was signed in Richard Adkerson, CEO of Freeport McMoRan stated that his company is protected with a work contract not the new mining law. As regards divestment for foreign mining companies in Indonesia, Freeport asserted it is not specified in the previous agreement. Adkerson said there is no stipulation for Freeport McMoRan to divest its share. He also stated that the taxes paid by Freeport were larger than the stipulation of the prevailing law in Indonesia. At this moment the government of Indonesia wants to renegotiate with Freeport Indonesia on the CoW. The renegotiation of the contract is in connection with the plan of the government to implement export duty for mineral including copper and gold. Adkerson stated that his side will respond to the issue that is raised by the government of Indonesia, and will cooperate. At this moment as much as percent share of PT Freeport Indonesia (PTFI) is owned by Freeport McMoRan Copper & Gold Inc; while the rest, 9.36 percent is owned by the government of Indonesia. 3 / 6

4 Divestment obligation of PTFI was just regulated in Article 24 of CoW extension of The said Article says divestment obligation of PTFI consists of two stages. First stage is releasing 9.36 percent of its share to the national side within the first 10 years since Then divestment obligation stage two beginning 2001 PTFI should release 7 percent of its share until national ownership reaches 51 percent. For the divestment obligation of PTFI first stage has been carried out. In 1991 that foreign gold and copper mining released 9.36 percent of its share to the national side through PT Indocopper Investama. Unfortunately for the divestment obligation stage two fell after the issuance of PP No.20/1994. In the said PP foreign share ownership by its subsidiary in Indonesia may reach up to 100 percent. Thus so far the national share ownership in PTFI is still small. It is different with share divestment case in Newmont. Dispute between the government of Indonesia and PT Newmont Nusa Tenggara (PT NNT) about share divestment obligation that had not been carried out yet by PT NNT until 2008 whereas in the Contract of Work between the government of Indonesia and PT Newmont Nusa Tenggara on December 2, 1986 it was decided that PT NNT should divest its share to the government of Indonesia. The dispute ended up in the international arbitration carried out under the arbitration procedure of United Nation Commission on International Trade Law (UNCITRAL). Eventually on March 31, 2009 the Arbitral Tribunal issued the final award that basically declared the Government of the Republic of Indonesia the winner and ordered PT NNT to implement the stipulation of Article 24 sub article (3) of the Contract of Work, namely to carry out 17 percent share divestment consists of divestment of 2006 as much as 3 percent, 2007 as much as 7 percent and for 2008 as much as 7 percent to the government of the Republic of Indonesia. Share divestment in foreign mining business that is meant to the amount of foreign share that has to be offered to sell to Indonesian participants in the Article 24 of Contract of Work is agreed that PT NNT is obliged to divest its share at the end of the fifth year at least 15 percent. At the end of the sixth year at least 23 percent, at the end of the seventh year at least 30 percent, eventually at the end of the eighth year at least 37 percent, at the end of the ninth year at least 44 percent and at the end of the tenth year at least 51 percent. 4 / 6

5 All obligations of the company according to Article 24 sub article (4) of CoW will be regarded as carried out after not less than 51 percent that was released and is available at the time it is offered to and bought by Indonesian participants. "...One of them is PT Freeport Indonesia; a subsidiary company of Freeport McMoRan Copper & Gold Inc. based in the US seems to be reluctant to divest its share in accordance with the wish of the government of Indonesia..." The issue of divestment and the long way of the struggle of the government of Indonesia for forcing PT NNT to carry out divestment obligation until it had to end in International Arbitration turns out not the end of a bit of share divestment issue of foreign mining business in Indonesia. Ownership of the last share offered for year 2010 as much as 7 percent by PT NNT was fought for by the Central Government and the Provincial Government of West Sumbawa. The struggle for ownership of the share was not only limited to the struggle that was carried out elegantly but, had aimed at stern measure of the pro-vincial government and provincial Parliament of West Sumbawa in the form of threat to close mining areas of PT NNT, demonstrations of people of West Sumbawa that refused mining and asked the Central Government for not buying the share offered by PT NNT, or even political safari of members of the provincial parliament to various ministries in Jakarta to support share buying by the provincial government. On the other hand the central government through the Finance Minister planned to buy the divested share using the Government Investment Center (PIP) as its means. The struggle between both administrators of the state became a problem in the realization of share divestment of Indonesian mining business, whereas in the future share divestment of foreign mining business will be going on and of course the provincial government and central government have similar interest in possessing the divested share offered by foreign mining business license holder in Indonesia. Meanwhile, the Executive Director of the Indonesian Coal Mining Association, Supriatna Suhala clarified that said government regulation constitutes disincentive to the mining sector for a period of five years to divest straight away is too fast. According to him at that time the mining 5 / 6

6 company has not experienced a pay back period. They still had debt to banks which average loan period was 8-12 years. He added that most of foreign investors that enter the mining sector own investment for exploration and exploitation that is more expensive than coal. Foreign Capital Investment is asked to construct smelter that technologically needs very high cost. "We have to carry out negotiation for improvement. Not only from divestment but also from the royalty aspect. They (CoW holders) are also contractors whose contract periods expired or will expire and want to invest again," said Coordinating Minister of Economy, Hatta Rajasa on an occasion. As long as the government remains respecting to the existing contracts and does not treat them unilaterally, the business players too want such discus-sions, asserted Hatta. (W19/T3) Source : Petrominer Magazine, No. 08 Vol. XXXIX August 15, / 6