Freeport Indonesia Asks for Special Incentives to Build Smelters

The CEO of the Indonesian Mining and Industry Group ( MIND ID ) Orias Petrus Moedak revealed that PT Freeport Indonesia needed special incentives to complete the copper smelter project in Gresik, East Java. He said that the Freeport smelter project is going well. However, it still requires special incentives because corporately the smelter construction is not profitable. This is because the added value of copper smelter construction is only about 5 percent.

“The copper project is different from other commodities. The added value in the copper smelter is only 5-7 percent, compared to 20 percent nickel and 40 percent tin,” Orias said at a press conference, Tuesday (31/8/2021). Also Read: Holding BUMN Mining Projected Net Profit of 2021 Reaches IDR 9 Trillion Related to this, said Orias, his party has been assisted by the Ministry of SOEs in writing with the Ministry of Industry and the Ministry of Energy and Mineral Resources to request special incentives to complete the construction of the Freeport smelter.

“The added value of copper is thin, so it does require tax facilities and other necessary incentives. Corporate ownership of a copper smelter is not profitable. We have this because the rules only require it, but if the calculation does not add profit,” he said. Previously, Freeport Indonesia President Director Tony Wenas also stated several times that the construction of a copper smelter was not a profitable project because the added value of the selling price of copper concentrate to cathode was only 5 percent. Also Read: Big Elephant Complex Project, Government Gives Green Light “The biggest added value from the ore being concentrate is already 95 percent of the added value because the selling price is already the selling price of the London Metal Exchange, but minus the TCRC (Treatment Charge and Refining Charge) fees. So from copper concentrate to cathode the added value is only 5 percent, ” Tony said in a virtual discussion, Monday (17/8/2020).

However, PTFI remains committed to continuing the construction of the smelter project in accordance with the provisions of the PTFI Special Mining Business License (IUPK). Meanwhile, Freeport plans to start construction of a copper smelter with a capacity of 2 million metric tons of concentrate per year at the Java Integrated Industrial and Ports Estate (JIIPE), Gresik, East Java, this year. Freeport has signed a cooperation contract for engineering, procurement and construction (EPC) activities with PT Chiyoda International Indonesia for a project at JIIPE in July 2021.

The construction of the smelter project worth approximately US$3 billion was hampered due to the Covid-19 pandemic. For this reason, Freeport also proposed a 12-month construction delay to the Ministry of Energy and Mineral Resources (ESDM) in April 2020. In the midst of the proposed postponement, an alternative option emerged that the construction of a smelter would be carried out in Weda Bay, Central Halmahera, North Maluku in cooperation with Tsingshan. In this cooperation option, most of the investment costs for the construction of the smelter will be borne by Tsingshan. However, the planned cooperation with Tsingshan did not continue because an agreement was not reached.