Attakcs on mining firms misplaced

Attakcs on mining firms misplaced

JAKARTA (JP): Mining analysts here have expressed great
concern over what they see as misplaced and groundless criticism
of the role of foreign contractors in Indonesia's mining
development.

Soetaryo Sigit, a former secretary-general of the Ministry of
Mines and Energy, is concerned that the sweeping criticism of the
government's mining contract policy may, falsely, give the
impression that foreign investment in the sector is no longer
needed.

Soetaryo, one of the architects of the mining Contract of Work
scheme, said such an impression would discourage foreigners from
investing in the country at a time when "we badly need foreign
capital and technology to develop our resources."

Mining consultant Rachman Wiriosudarmo shared Soetaryo's
concern, contending that such insensitive criticism was harmful
to mining development, especially now when the international
competition for foreign capital to finance highly risky mining
operations had become keen.

Several politicians, such as Amien Rais, and analysts such as
Rizal Ramli recently attacked the domination of Indonesia's
mining industry by foreign companies and the manner in which the
government has been managing foreign investor operations in the
sector.

They sharply criticized the government for asking for only a
10 percent stake in the Canadian joint venture which plans to
develop the Busang gold mine in East Kalimantan.

"We must admit that high-risk mining activities are still
unattractive to domestic investors not only because they have
limited capital and technology, but also because they are not
very familiar with mining operations," Soetaryo said.

Foreign mining contractors account for 100 percent of crude
copper production, 93 percent of gold, 89 percent of silver, 25
percent of tin and almost 70 percent of coal production in
Indonesia. Foreign oil contractors also dominate the hydrocarbon
sector.

Soetaryo predicted that the role of foreign investors in the
development of Indonesia's mining sector would continue to be
considerable for "quite a long period of time".

"It is therefore a pity that much criticism of mining
operations in Indonesia has been based on wrong presumptions.
Critics do not fully understand the laws which, in fact, have
managed to attract foreign investors," Soetaryo said.

The Ministry of Mines and Energy has been criticized lately by
mining analysts and consultants for failing to solve promptly the
dispute between Bre-X Minerals and Barrick Gold Corp. both of
Canada over a potentially huge gold mine in Busang, East
Kalimantan.

The dispute between the two mining giants -- each of which has
politically influential businesspeople as local partners -- has
caused some critics to demand the government review its mining
Contract of Work policy.

The critics said the government should strengthen its
bargaining position and increase the role of local companies in
mining contracts. They demanded that mining activities be
designed for the greatest welfare of the people and not the
benefits of foreign contractors.

Soetaryo explained that according to current regulations (Law
No. 1/1967), foreign investment in a mining operation should be
based on a contract of work with the government or a cooperation
agreement with a state-owned company.

Contracts of Work -- which stipulate technical, financial,
fiscal and legal clauses -- must gain Presidential approval after
being discussed by the House of Representatives.

Contrary to the criticism, Soetaryo said, the Contract of Work
scheme brought many benefits to the nation.

These included contract fees, exploitation royalties and
various taxes and levies imposed by local administrations and the
central government, and indirect benefits such as jobs, basic
infrastructure, the transfer of skills and technology.

"I think the terms settled in the mining contracts of work
with foreign investors are quite good, meaning they are fair and
mutually beneficial to both the investor and the government," he
said.

"What's important is that all government offices involved
exercise effective control of the implementation of the contracts
of work," he added.

Rachman also saw most of the recent criticism against foreign
mining contractors as misplaced and out of proportion.

"The size of government shareholding in a foreign mining
contract is not crucial to ensuring that a mining concession
contributes greatly to the public's welfare," he argued.

According to him, the most important thing is that the terms
of the mining contract of work are designed to enable Indonesia
to gain the greatest benefits from the mining activities.

"The size of shareholding only influences the level of
dividends to be paid out of profits every year," Rachman said.

He shared Soetaryo's views that the national capability to
develop mineral resources is still very limited, especially
because mining operations are highly risky and capital and
technology-intensive ventures.

In fact, Rachman noted, almost all of the private national
companies which obtained mining concessions eventually involved
foreign contractors in their business.

He turned down as completely groundless the allegations of
poaching or robbing leveled by several critics against foreign
mining contractors.

"The mining Contract of Work is the only one of the numerous
business deals between the government and foreign entities which
must first be discussed by the House of Representatives before
the deal is approved by the President," Wiriosudarmo pointed out.

"If the critics' allegations that most of the mining contracts
are harmful to the national interest is true, should that mean
the ministry of mines and energy, the House and the President
himself have so far made big mistakes?" he asked.

He rejected the demand of some critics for the closing down of
foreign mining concessions as entirely impractical and illogical
especially because the critics had not suggested an alternative
contractual concept that could contribute more to the public's
welfare. (pwn/vin)