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UPDATE 2-State auditors recommend Freeport Indonesia be fined for smelter delays

(Update with Freeport Indonesia's comments in para 5-6, adds background in para 7-9, 11)

JAKARTA, Dec 6 (Reuters) - Indonesian state auditors have recommended the energy ministry fine Freeport Indonesia for delays in its plan to build a copper smelter, estimating that such a penalty could amount to $501.94 million, a report issued this week showed.

The Audit Board of Indonesia, known by its local language abbreviation BPK, made the recommendation as part of a summary of its audit results in the first half of 2023, which was submitted to parliament on Tuesday.

PT Freeport Indonesia (PTFI), which mines copper and gold in Grassberg in Indonesia's Papua, is operated by U.S. miner Freeport McMoran, but the majority of its shares are owned by Indonesian state-owned company MIND ID.

The company is building a $3 billion copper

smelter

in East Java, but the project has faced

delays.

Freeport Indonesia said the construction plan has been agreed with the government and the progress, which has reached more than 83% as of November, has been in accordance with the agreed plan targets.

"Regarding the delay fines, we continue to coordinate with the government," said Freeport Indonesia's spokesperson Katri Krisnati.

In a memorandum of understanding in

2015

, Freeport agreed to build a copper smelter and placed a bond to guarantee the smelter construction in order to obtain an export permit.

Later on, in a December

2018

deal, Freeport and Jakarta agreed that the miner would complete the smelter within five years.

The smelter broke ground in

2021 after being delayed due to the COVID-19 pandemic and is scheduled to start production in mid 2024, before running in full capacity by end of next year.

BPK in its audit found that PTFI has not measured its smelter progress against its initial plan and argued this meant PTFI qualifies to be charged an administrative fine.

The energy ministry did not immediately respond to a request for comment. By law, officials must respond to BPK's recommendations, though they are not always followed. (Reporting by Bernadette Christina Munthe; Writing by Gayatri Suroyo; Editing by Kanupriya Kapoor and Chizu Nomiyama)

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