Addressing mining critics

Addressing mining critics

The recent heated debate about the manner in which the
Indonesian government has licensed foreign companies to extract
the country's mineral resources has apparently caused great
concern for President Soeharto. This is apparent from his special
instruction earlier this week to Minister of Mines and Energy
I.B. Sudjana to prepare an information program to brief the
general public on the government's mining policy.

Never before has the government's mining policy come under
such scrutiny and sharp criticism by analysts and politicians as
that sparked by the battle for the control and ownership of huge
gold deposits at Busang in East Kalimantan. The debate on the
Busang mine later broadened to what critics called the
questionable benefits of the mining policy for the public's
welfare. What made the issue more appealing was the controversy
it raised and the old issues that resurfaced concerning the huge
copper and gold mine developed in Irian Jaya by Freeport-McMoran
of the United States in the late 1960s.

What seemed to have triggered the President's concern, given
his determination to do everything strictly according to the
Constitution, was the critics' allegations that the exploitation
of mineral resources had not conformed with Article 33 of the
Constitution. This article stipulates that the exploitation of
natural resources be made to the greatest benefit of the people.

It seemed strange, however, that it was former mining
officials such as Mohammad Sadli, Soetaryo Sigit and Rahman
Wiriosudarmo, and not the incumbent ones, who aggressively tried
to enlighten the general public of the real issues in the mining
sector. One might suspect their comments on the positive points
of the mining policies were simply designed to defend their
reputation as they had played a major part in the formulation of
the policy in the 1970s and 1980s. However, their eloquent point
of view served to reject the allegations as groundless.

Former mining officials have admitted it is true the contract-
of-work (COW) concept in the general mining sector needs review
from time to time, taking into account the prevailing changes,
including the international competition for foreign capital and
technology. In fact, as far as minerals -- except for oil and
natural gas -- are concerned, the COW concept has so far been
changed five times.

The concept for the sixth generation COW is now being
finalized and it is this concept which will be applied to the
contract for the Busang gold mine. The basic concept stipulates,
among other things, the amount or rate of permanent fees,
royalties, income tax, property tax, value added tax, import
duty, stamp duty, local taxes and fees and gradual relinquishment
of the concession areas. It also includes additional requirements
designed to suit the specific characteristics of the minerals to
be developed.

Officials, politicians and both domestic and foreign
businessmen have praised the basic COW concept as the most
transparent deal between the government and private investors.
Every COW agreement has to be consulted through open debates with
the House of Representatives before it is approved by the
President. Several other countries have followed the Indonesian
production sharing contract concept in the hydrocarbon sector as
a model.

The government would likely address the wrong issues and not
satisfactorily answer the critics if its information campaign
focused on the general mining policy. We are familiar with
wandering criticisms by detractors who want to avoid head-on
confrontation with a powerful target. We believe the criticisms
were triggered not by what might be perceived as the shortcomings
of the mining policy itself, but mainly by the sudden,
unprecedented entry of what the public sees as politically well-
connected businessmen into the gold mining industry. This is the
real issue which the Minister of Mines and Energy Sudjana will
have to explain.