Signing Head of Agreement Share Sales 42.02% of Freeport Indonesia at Finance Ministry on Juky 12 - Photo by TheInsiderStories

JAKARTA (TheInsiderStories)–Critics are quick to reign in the celebration by the government and its supporters who claim victories in shares divestment mining giant Freeport McMoran.

The company and PT Indonesia Asahan Aluminium signed a head of agreement on July 12, 2018, which will see the latter take a majority stake in the former’s subsidiary, PT Freeport Indonesia.

Universitas Indonesia International Law expert Hikmahanto Juwana in a press release on Sunday (15/06) said that the signing is not yet a victory for Indonesia.

“Declaring government wins [in Freeport divestment] is certainly a premature statement,” he added.

He said there are at least four points that need to detailed after the HoA signing. First, The HoA does not mean Freeport has officially conducted the divestment as the HoA was not a stock trading agreement, it only serves as an initial principal agreement that should be followed by a number of agreements.

Inalum still has to complete the deal to purchase 40 per cent of Rio Tinto’s stake in Freeport Indonesia. Another agreement is a share trading agreement to purchase 5.4 per cent share of Freeport McMoran through PT Indocopper Investama.

“Such agreements should be observed as there’s an adage among lawyers that says the devil is on the details,” he said.

Second, the basic term of the contract to count the Freeport Indonesia’s share price. If the concession is not renewed and will end by 2021, the price will be cheaper than if the concession gets renewed until 2041. The government does not have a certain attitude related to PTFI contract extension.

“It left a question if there are any changes in the post-2019 election, is there any obligation to stick with the HoA?” he added.

Third, the government should pay attention to the decision-making scheme at the shareholders meeting. The majority shareholders title will be useless if the decision-making scheme needs validity of attending at least 51%+1.

Moreover, if the remaining share owned by Freeport McMoran holds a special status, meaning that without its presence the shareholders meeting will not reach a quorum, thus impacting the appointment of the board of directors and board of commissioners.

“If so, even though government owns majority share but the company’s control with still in the Freeport McMoran,” he said.

The government should also take notice on share dilution in the case of rights issue in the future in which the government cannot participate.

Former President Director of Indonesia Stock Exchange (IDX) Tito Sulistio raised concern over Freeport Indonesia’s stock valuation.

He said the US$3.85 billion valuations to increase government’s share ownership to 51 per cent from the current 9.36 per cent is overvalued. In the negotiation, Inalum will buy 40 per cent of Rio Tinto’s share in Freeport Indonesia and 5.4 per cent of Freeport Indonesia’s share through its subsidiary of PT Indocopper Investama.

Sulistio recalled the agreement in the past when the Indonesian government bought 9.36 per cent of Freeport Indonesia’s share through PT Indocooper but it resold to Freeport McMoran with a valuation of US$400 million.

He said that if a 9.36 per cent stake worth US$400 million, then the valuation of 40 per cent will be a maximum of US$1.7 billion. “The newly signed price is now US$3.85 billion, or more than double,” he added.

It seems too early and excessive to conclude that Indonesia wins in negotiations with Freeport. This negotiation will continue, our duty to keep watch over the agreement and ensure the agreement bring prosperity to the community, especially the Papuan who had felt the adverse impact of Freeport’s operation.