divestment-of-freeport-shares-must-be-for-indonesian-nation

Divestment of Freeport Shares Must be for Indonesian Nation

06 September 2018       527        Admin

Monthly comprehensive negotiations between the Government of the Republic of Indonesia and PT. Freeport Indonesia ( Freeport ) related to the management of copper ore, gold and silver mines located in Mimika Regency, Papua Province began to show a bright spot. Three crucial points of negotiation that have been blocked almost agreed. One of them is about Freeport’s obligation to divest 51% of its shares. Previously, Freeport insisted on 30% ( Bisnis Indonesia, 22/8/2017 ).

Indonesian Participants

According to Government Regulation No. 1 of 2017 on the Fourth Amendment on Government Regulation No. 23/2010 concerning the Implementation of Mineral and Coal Mining Business Activities (PP No. 1/2017), the divestment of mineral and coal mining companies owned by foreigners such as Freeport is done in stages. The first party entitled to get a divested purchase of Freeport shares is the Government of the Republic of Indonesia.

The right to accept the offer or to purchase further falls to the Regional Government of the Papua Province or the Regional Government of Mimika Regency, if the Government of the Republic of Indonesia discharges that right. If the Regional Government of Papua Province or Regional Government of Mimika Regency also relinquish their rights, the next party entitled shall be State-Owned Enterprises (BUMN) and Regional Owned Enterprises (BUMD).

The most recent opportunity holders to purchase Freeport divestment shares are national private enterprises, whereby BUMN and BUMDs also waive their rights (Article 97 paragraph (3) of Government Regulation No. 1/2017). All parties referred to above are referred to as Indonesian participants, namely domestic parties who are eligible to receive bids and / or purchase shares of divestment. The affirmation of the shares of the divestment must be transferred to the participants of Indonesia is one of the congruous efforts manifest the article 33 paragraph (3) of the 1945 Constitution which mandates “earth, water and natural resources contained therein dominated by the State and used for the greatest prosperity of the people”.

Divestitures Through IPO

On January 18, 2017, the Ministry of Energy and Mineral Resources issued Ministerial Regulation No. 09 of 2017 on Procedure of Share Divestment and the Mechanism of Determining Share Price of Divestment on Mineral and Coal Mining Business Activities (Permen ESDM No. 09/2017). A new divestment mechanism is introduced in this Ministerial Regulation, divestment through an initial public offering (IPO) or divestment through a public offering on the stock exchange previously unknown in our positive law.

The formulation of Article 10 paragraph (1) of ESDM Candidate No. 09/2017 reads “In the event that the offering of Divestment of Shares to Indonesian Participants as referred to in Article 4 to Article 9 is not executed, the Share Divestment can be done by offering divestment shares through the stock market in Indonesia”. An important message of this chapter formulation is that divestiture through an IPO is the last resort that can be executed when the ordinary way does not work.

Other messages, divesting through an IPO does not mean selling Freeport’s shares freely divestment to other parties outside Indonesian participants. In other words, although ultimately the divestment must be done through an IPO, the Government must ensure that those who purchase the shares are participants, either Government, Provincial Government of Papua or Mimika Regency, BUMN and BUMD or private national business entities.

The affirmation is also contained in Article 1 point 13 of ESDM Regulation no. 09/2017 that a national private enterprise entity as the last participant of Indonesia is entitled to an offer or to purchase a divestment share is a legal entity with 100% (one hundred percent) ownership of capital or shares in the country.

The government must be careful to implement Freeport shares divestment through IPO. Because, on the technical level, divesting through IPO is possible not to move shares that are now held by Freeport (foreign) to the participants or the nation of Indonesia. Because, in general terms, anyone can buy Freeport shares that are offered publicly on the stock market, including foreign investors who in fact indeed control the Indonesian capital market. As from the latest data released by the Indonesia Stock Exchange (IDX), by the end of July2017, 52.27% of the shares traded on the Stock Exchange are in foreign hands ( IDX, August 2017 ).

If indeed the divestment of Freeport shares is done through the IPO, the Government must keep positioning the nation’s interest in the number one position. The Government must ensure that the basic principle of divestment intends to move most of the shares of foreign companies exploiting Indonesia’s land in the hands of the Indonesian nation as mandated by PP. 1/2017 and reinforced in the Ministerial Regulation No EMR. 09/2017 must remain enforced. The solution, the Government must create a safety valve, which is to enact a special beleid stipulating that the shares of Freeport divested shares traded on the Indonesian stock exchange may only be purchased by the Indonesian nation alone. If not, prepare to move from the mouth of the tiger’s crocodile mouth.