Experts criticize mining policy changes

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)