Economist urges better mining contract terms<\/p>\n
JAKARTA (JP): An economic advisory group reiterated yesterday
\nits suggestion that the government review the terms of its mining
\ncontract policy because the current scheme was outdated and
\nfailed to generate the greatest possible benefits for
\nIndonesians.<\/p>\n
Rizal Ramly, the director of Econit, said the mining Contract
\nof Work scheme currently used by the government had been designed
\nat a time when Indonesia was in dire need of large foreign
\ninvestments.<\/p>\n
The Contracts of Work were therefore made very attractive for
\nforeign investors and gave them large economic gains, he said.<\/p>\n
The facilities given to foreign contractors in the mining
\nsector included tax holidays and other fiscal incentives and,
\nuntil 1986, exemption from royalty payments.<\/p>\n
Rizal said the situation had now changed and the government
\nshould consider strengthening its bargaining power for the sake
\nof the people.<\/p>\n
He cited, as an example, the activities of New Orleans-based
\nPT Freeport Indonesia -- the holder of vast gold and copper
\nmining concessions in Irian Jaya -- which he said had been given
\n\"too much\" by the government.<\/p>\n
\"The government should have made a better deal (for Indonesia)
\nin 1991, when the company's Contract of Work was renewed,\" he
\nsaid.<\/p>\n
Freeport, a subsidiary of Freeport-McMoRan Copper and Gold,
\ngot its first 10,000-hectare concession in 1967 to become the
\nfirst foreign investor in Indonesia under President Soeharto's
\nadministration. It started copper and gold production in 1973.<\/p>\n
Under Freeport's first Contract of Work, the government
\nreceived royalties of 1.5 percent to 3.5 percent from net copper
\nsales starting only in 1986.<\/p>\n
The contract was renewed in 1991 -- seven years before the
\nfirst contract period had ended and shortly after Freeport struck
\nhuge gold deposits in Irian Jaya's Grasberg mines.<\/p>\n
However, Rizal argued, the terms gained by the government in
\nthe second contract did not change much, although it was agreed
\nlater on that 20 percent of Freeport's shares belonged to
\nIndonesia: 10 percent owned by the government and 10 percent by
\nPT Indocopper Investama, a subsidiary of PT Bakrie Brothers.<\/p>\n
Over the years, however, the Freeport issued more shares,
\nleaving the government and Indocopper now with a 9.36-percent
\nshare each and Freeport with an 81.28-percent share.<\/p>\n
Econit said last month the revenue received by the government
\nfrom Freeport's mining activities, including from royalties,
\ntaxes and other levies, was too low.<\/p>\n
The government's stake in Freeport was also very small, it
\nsaid.<\/p>\n
Rizal said a revision of the contract of work should be made
\nso the government and the people received a larger share in
\nFreeport.<\/p>\n
\"What we mean by 'share' here not only covers the percentage
\nof shareholding but includes revenues from royalties, taxes and
\nother fees and levies,\" he told The Jakarta Post.<\/p>\n
Rizal suspected there had been collusion between the
\ngovernment and Bakrie when the 20 percent stake for Indonesia was
\nsettled as a precondition to the second contract of work.<\/p>\n
He said the second contract could have been tailored to
\n\"optimize\" benefits for Indonesia.<\/p>\n
\"Freeport no longer had to spend a great deal on exploration
\nunder the second contract, but still the government succeeded in
\nimposing only a 35 percent income tax rate -- as it did in the
\nfirst contract during 1976-1983 -- and only a 15 percent tax on
\ndividend and interest,\" Rizal said.<\/p>\n
Similar to the first contract, the second contract of work
\nalso had a period of 30 years. But, again the contractor was
\ngranted a very favorable deal as it has the option to extend the
\ncontract twice, by 10 years each, Rizal added.<\/p>\n
The royalties for copper remained at between 1.5 and 3.5
\npercent and for gold and silver at 1 percent.<\/p>\n
Last week political analyst Amien Rais suggested the
\ngovernment stop Freeport's mining concessions all together
\nbecause it did not benefit Indonesians but mostly the American
\ncompany.<\/p>\n
Rizal said the same mistakes should not recur in the Busang
\ngold concession.<\/p>\n
The mining contract for the Busang II gold mine, with an
\nestimated 57.33 million ounces of gold deposits, is being fought
\nfor by Canadian mining companies Bre-X Minerals Ltd. and Barrick
\nGold Corp.<\/p>\n
Both companies have joined with politically well-connected
\nlocal partners in the hope of winning the contract. (pwn)<\/p>",
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