The fuss in mining<\/p>\n
The fuss now raging in the Indonesian mining sector would not
\nhave occurred had the government fully realized that consistent
\nand predictable application of rules and contracts over time is
\nvital for investor confidence.<\/p>\n
The manner in which the government proposed what analysts
\nconsider sweeping changes in the seventh generation of mining
\ncontracts is as if the government considered it all right to
\ncompromise the credibility of its public policy for the sake of
\nnational interest. What further impaired the policy's credibility
\nwas the confusion within the government itself and the
\nconflicting statements by officials over the proposed amendments.<\/p>\n
It is regrettable that the government has not learned from the
\nfiasco it caused with its foiled attempt to obtain a 10 percent
\nstake in Newmont's Batu Hijau gold property in West Nusa Tenggara
\nin April. One may argue that the tussle over the government's
\nmove on the Batu Hijau gold mine was different, because Newmont
\nhad signed its contract of work (COW) in 1986. The changes
\nproposed by the government last week at a series of meetings with
\nforeign contractors would affect about 200 new seventh generation
\nCOWs which are yet to be signed.<\/p>\n
Nonetheless, judging by the negotiations and licensing
\nprocedures for COWs in the country, the changes proposed for the
\nnew contracts have reflected inconsistencies in basic rules.
\nMoreover, the proposed amendments seem to be quite substantial as
\nmost of them include the basic and principal elements in a COW.
\nThey would give the government the right to obtain and increase
\nequity and profits from new mining ventures as well as share in
\nthe capital gains made from the public offering of shares.<\/p>\n
First of all, even though the COWs still have to be consulted
\nwith the House of Representatives and be approved by the
\nPresident, they have been initialed by the contractors and
\nministry of mines and energy officials after lengthy
\nnegotiations. The basic and principal terms of the COWs are
\nusually agreed upon during the negotiations and never, to our
\nknowledge, have any of the rules and terms already agreed upon
\nduring the negotiations been changed either by the House or by
\nthe President.<\/p>\n
Secondly, the government's move to demand a minimum 10
\npercent stake in a mining venture even before commercial
\nproduction starts runs against the regulation which allows
\nwholly-foreign owned investment projects.<\/p>\n
Director General of Mines Adjat Sudradjat said Friday that the
\nproposed changes were only suggestions to be discussed and would
\nnot be made compulsory. But foreign contractors are highly
\napprehensive of the proposals because in the past the government
\nhas sometimes arbitrarily changed its rules for what it claimed
\nas the promotion of national interests.<\/p>\n
True, the changes proposed for the seventh generation COWs are
\nalso meant to promote national interests through national
\nownership of natural resources. But as State Minister\/Secretary
\nMoerdiono said Thursday, we badly need foreign capital to help
\ndevelop our huge, yet highly risky mineral resources. That means
\nwe should not only offer clear-cut terms which are competitive to
\nthose in other countries with similarly big mineral resources but
\nshould also persistently honor those terms.<\/p>\n
We understand that public opinion pressures, and sometimes the
\nvested interests of some politically well-connected groups, often
\nprompt the government into policy inconsistency. But as the
\ngovernment has often learned at great cost, sudden and abrupt
\npolicy changes, especially in high-risk sectors such as the
\nmining industry which needs long-term investment, are
\ncounterproductive. A high degree of uncertainty is already
\ninherent in mining businesses -- in most cases commercial
\nproduction only starts after more than seven years of major
\ninvestment in exploration -- and the government should not
\nunnecessarily increase the risks by policy inconsistency.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/the-fuss-in-mining-1447893297",
"image": ""
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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