Indonesia's green ploy is a red flag. Freeport-McMoRan says "shocking" new environmental demands will further delay an already tricky deal with Jakarta over ownership of its Grasberg copper mine. Cleaning up is a good thing, but the last-minute changes smack of strong-arm tactics.
The outcome is significant both for the copper market and Freeport's future. Negotiations also test the government of President Joko Widodo, commonly known as Jokowi, which is balancing populist demands for more control of resources with the need to foster investment, expand and create more jobs. Indonesia's economy has been growing by about 5 percent in recent years, below a 7 percent target and short of the potential of a young, digital-savvy country of some 270 million people.
Presidential and general elections next year also complicate matters.
New green twists in the copper saga are unlikely to undermine the talks completely, but hurt both sides. First, an academic study quoted by Indonesia's audit agency puts the cost of Freeport's environmental damage at $13 billion. Though not a fine, a local media report suggests the estimate has been used by the Indonesian side to try and secure a discounted price for Rio's holding.
Now, days before Jokowi's own April deadline, the environment ministry has issued two new decrees. Together, they scrap an earlier agreement on mine waste and introduce tough new rules. Freeport argued on Tuesday that the demands - specifically ones around managing, storing and monitoring waste - are impossible to meet.
Better environmental practices are sorely needed in Indonesia, where logging and coal mining have left tropical landscapes scarred. Using them for negotiating leverage is unseemly, though. It cost Freeport some $4 billion in lost market value. Blindsides of this sort should worry any investor.
- S.-based miner Freeport-McMoRan said on April 24 that new environmental standards imposed by the Indonesian environment ministry could delay a deal for its Grasberg copper mine.
- Chief Executive Richard Adkerson described the environment ministry's demands as "shocking" and "disappointing", but said he was confident a resolution would be found.
- Freeport shares fell more than 14 percent, to $16.08 apiece.
- The company had promised to divest a 51 percent stake in Grasberg to domestic peers in exchange for long-term operating rights. The government owns less than 10 percent of Freeport Indonesia.
- Energy Minister Ignasius Jonan said in March that President Joko Widodo wanted to wrap up Grasberg talks by April.
Source: Clara Ferreira-Marques / Reuters Breakingviews
25 April 2018