The Indonesia Mining Association (IMA) suggested Friday the government allow foreign mining firms to sell their shares to local entities, as required under the mandatory divestment program, via initial public offerings (IPOs).
The powerful mining lobby group argued such a scheme would ensure transparency and fairness for both local entities as well as foreign mining firms which are required to unload the stake.
IMA chairman Arif S. Siregar said through IPOs, potential conflicts caused by lingering divestment negotiations between the mining firms and local entities could be reduced.
"There will be fewer problems if the planned divested shares are offered to the public because the process will be run in a more transparent manner," Arif said.
"We have proposed to the government a change in the mechanism used during a divestment process in a bid to guarantee transparency."
He was referring to the divestment process of Newmont Nusa Tenggara, which had been stalled for almost two years with both the government and the company threatening to take the case to an arbitrary tribunal.
Under the so-called contract of works, several foreign mining firms are required to divest their shares to the central government as preferential buyer. If the government declines to purchase the stake, local administrations will be given priority before local firms.
Arif argued the IPO scheme would prevent negotiations being resolved through a backroom deal, which can allow unwanted third party firms to intervene in the process.
Should such parties manage to secure the stake, they could put the future operation of the mining companies at risk, said Arif.
He said the divestment process of a number of mining companies carried out by the government had not been transparent, and therefore had invoked speculation on the involvement of vested interests.
The Financial Times reported Friday the country's largest coal producer PT Bumi Resources, controlled by the powerful Bakrie family, had been striving to secure shares that would be divested by Newmont under the mandatory divestment program.
The daily alleged Bumi of signing a confidential deal with local administrations to help the company secure the stake.
This speculation has been reported as among the hurdles in the divestment negotiation between the government and Newmont, as the latter insisted the cash-strapped local administrations disclose their main financier in purchasing the stake.
Bumi corporate secretary Dileep Srivastava denied the allegation, saying the firm was not interested in buying the stake unless it could secure a majority portion.
Newmont still has a 31 percent stake to sell to local entities. Local firm PT Pukuafu Indah already bought some 20 percent.
Another foreign mining firm required to immediately sell a portion of its shares is Freeport McMoran Indonesia, which mines copper and gold in Timika, Papua.
The government has ordered the company to resell its 9.36 percent stake to local entities.
Minister of energy and mineral resources Purnomo Yusgiantoro said there should be clearer regulations regarding the divestment process so as to avoid any problems in the future, as well as to ensure legal certainty to investors.
In its recent report, consulting firm PricewaterhouseCoopers blamed uncertainty in the divestment process as the main factor undermining competitiveness in the country's mining industry.