Experts criticize mining policy changes

JAKARTA (JP): The government's proposed changes to mining policy, one of which would require foreign contractors to give a 10 percent share of their mining ventures to the government, drew criticism from several former mining officials and analysts yesterday.

"The government should increase revenue from mining contracts through royalties rather than equity participation," former minister of mines and energy Subroto told House Commission VI for mining and industry.

Subroto, former ministry of mines and energy secretary-general Soetaryo Sigit and former mining official Ridwan Mahmud, briefed House members on their views about the government's proposed changes to seventh generation mining contracts of work (COW).

Subroto said equity participation also required a capital injection which bore risks because it would not automatically generate dividends.

"Moreover, the proposal which obliges foreign mining contractors to give a 10 percent share to the government (before they start production) goes against the 1994 law which allows wholly-owned foreign investments in the mining sector," Subroto said.

The former officials who now work mostly as analysts or consultants called on the government to adhere to existing laws to protect Indonesia's hard earned credibility with mining investors.

Otherwise, Indonesia might lose to tighter competition from other developing countries in attracting foreign investment to their mining sectors, they said.

"We already have a good reputation among foreign mining companies as a country which adheres to the rules. Many countries have even imitated our mining policy," he said.

Director General of Mines Adjat Sudrajat said last Friday that the government had proposed several changes to the seventh generation COWs which had been initialed last year by mining officials and contractors.

Foreign companies have reportedly rejected any changes to their draft COWs because they were negotiated with and approved by former director general of mining, Kuntoro Mangkusubroto.

Kuntoro was replaced by Adjat Sudrajat in April.

Foreign investors expected only minor changes would be made to their draft contracts when they were taken to the House of Representatives and the Investment Coordinating Board for discussion.

Commission VI deputy head Lili Asdjudiredja said 194 COWs -- including 15 coal COWs and 176 mineral COWs -- would be discussed with the House soon.

Subroto said that under existing law, foreign mining companies had to offer up to 51 percent of their shares to Indonesian interests after ten years of operation.

"The government or the public have to buy the shares. If they don't have any money, the shares will remain in the hands of the foreign contractors," he said.

"We cannot get the shares for free because the mining ventures are not owned by our grandfathers," Subroto said.

Soetaryo agreed that it was better for the government to raise royalties or taxes on minerals to increase its income from the mining sector, rather than obliging foreign miners to give it shares.

Ridwan said Indonesia also had no right to ask for a portion of capital gains earned by foreigners from buying and selling shares in their own countries.

"Do you think Indonesia has the right to tax foreigners in their own countries?" Ridwan said about the government's request for a share in the capital gains made by foreign contractors from any share issuance overseas.

Other changes proposed by the government to seventh generation COWs require foreign contractors to offer shares to local cooperatives or companies owned by local administrations, to obtain government consent for the release of any mining data to the public and to have their reserves assessed by independent consultants. (jsk)