November 29, 2018 / 12:12 PM / 13 days ago

UPDATE 1-Indonesian president calls for Freeport deal to be wrapped up quickly

(Adds fresh comment from Papua governor)

By Fergus Jensen and Bernadette Christina Munthe

JAKARTA, Nov 29 (Reuters) - Indonesian President Joko Widodo called on Thursday for an “immediate” end to issues holding up the country’s plans to acquire a majority stake in Freeport-McMoRan Inc’s giant Grasberg copper mine in Papua.

For Widodo, seeking reelection next year, getting a majority stake in the mine for Indonesia would be a political boon.

The deal, which would give Indonesia and state-owned miner PT Inalum a 51.23 percent stake in PT Freeport Indonesia, aims to end years of wrangling over ownership rights to Grasberg, the world’s second-biggest copper mine.

But a series of planned transactions worth $3.85 billion is still subject to Inalum securing a special permit for the mine, which requires environmental clearance relating to its waste disposal, and other regulatory issues.

Papua last week rejected the proposed ownership structure for the stake under which the province would indirectly own 10 percent of Freeport’s local unit, potentially delaying the deal.

“I ask that all stages of the divestment process can be finished and final (and) we hope that before the end of 2018 everything is completed,” Widodo told a meeting with Inalum, Papua Governor Lukas Enembe and other government officials.

The president had also requested details on environmental matters, according to a statement on the cabinet secretary’s website.

“We will use (this acquisition) to the maximum extent to improve the welfare and prosperity of the people, primarily the people of Papua,” Widodo said.

According to Enembe, Widodo also demanded the transactions be carried out “very carefully” to prevent intervention by third parties.

Enembe referred to a 2015 scandal linked to Grasberg in which Indonesia’s former parliament speaker was accused of attempting to extort shares worth $1.8 billion from Freeport, as part of the compulsory majority divestment.

“That cannot happen again,” Enembe said in a press release.

Once the deal is completed, Papua should “hold a 10 percent stake and Papua will also have rights regarding Freeport’s agenda going forward,” he said.

A spokesman for Inalum confirmed Thursday’s meeting but said he was unable to comment further.

Inalum, which earlier this month raised $4 billion in bonds to fund the Grasberg deal, has proposed to finance the purchase of the 10 percent stake for Papua in Freeport Indonesia via joint ownership of PT Indocopper Investama.

“This is the most efficient mechanism financially and legally,” Inalum said in a statement last week.

The structure was intended to prevent private companies from being involved in the Freeport transactions, Deputy State Owned Enterprise Minister Fajar Harry Sampurno told reporters on Monday.

“Obviously they don’t want the Papua government going off on a frolic of its own, selling the shares or pledging the shares or doing something like that,” Jakarta-based foreign legal counsel Bill Sullivan told Reuters.

In a media report on the Papua government website, Enembe was quoted as saying last week that the Inalum proposal “is not in accordance with a previous agreement”, and that his government wanted to form a company that would control the 10 percent stake itself.

Since Freeport won the right in 1988 to mine Grasberg, it has been a lightning rod for grievances over impacts on the environment and revenue sharing.

The company says it is fully compliant with Indonesian environmental rules. (Reporting by Fergus Jensen; Additional reporting by Wilda Asmarini and Bernadette Christina Munthe; Editing by Tom Hogue and Mark Potter)

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