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)