Government should not 'mess around with Newmont'

Former mining minister Mohammad Sadli believes the Busang gold mine hoax is nothing compared to the government's proposal to get a stake in another gold mine project, Batu Hijau concession, on Sumbawa Island, West Nusa Tenggara. The following is excerpts of his interview with The Jakarta Post.

Question: What do you think of the findings of auditor Strathcona Mineral Services Ltd. that the Busang gold discovery was nothing but a hoax?

Answer: I have nothing more to say about Busang. It needs further investigation as to who perpetrated the deception. Was it the group of Filipino geologists, the Bre-X people or others?

One thing that is clear is that all the Bre-X people have become rich. For at least three months after they claimed the gold discovery, they reaped financial advantages from the soaring stock.

Q: Some analysts say Strathcona's finding will have a bad impact on Indonesia's mining industry...

A: It may be true, but only for small companies like Bre-X which do not have enough funds to work independently. They depend on the stock markets for cash, so it will be difficult for them to raise money now. But any embarrassment will last for maybe no more than six months. People will quickly forget it.

I believe it won't hurt Indonesia's mining industry considering there are many successful mining projects here. Even if there are no other discoveries for the next six years, we can survive. New discoveries may only create further confusion.

What concerns me much more is the Newmont case. (The government is asking for a 10 percent stake in the East Nusa Tenggara mine. The contract of work was signed in 1986.)

Q: What are your worries over this?

A: I do not understand why the Ministry of Mines and Energy has not yet granted Newmont a construction permit. The contract of work belongs to the fourth generation. It has passed the House of Representatives as well as the presidential office. It has a strong legal basis. It has to be complied with.

That's why I said the Busang case is nothing in comparison. It would be better for us to just forget about Busang. It was a nightmare. Besides, the government suffered no financial loss from it. The Newmont case is much more important than Busang.

Q: To what extent?

A: It will have a very bad influence on the country. It will lead others to think that those are the rules of the game in Indonesia. People will think that even a contract of work, which has legal power, won't give any guarantee of a secure business environment.

Q: Are we losing foreigners' trust?

A: It will make other companies, like Freeport or Inco, who have been working here under certain contracts of work, feel less secure in doing business. Such an insecurity will pass on to their banks, which in turn might cause the companies' difficulties in raising funds.

The Newmont project is about to enter the construction stage. A huge amount of money has been spent there. Yet the company's stake composition is to be messed around with. I've never heard anything like this before, in Indonesia or in any other country.

As a former mining minister, I'm very much concerned about it.

Q: Can you see why such a situation has developed?

A: From what I have read from media reports, it's because the government wants a bigger percentage for Indonesians in such projects, up to 50 or 51 percent. It's actually alright to have such a desire, but it should have been done in the negotiation stage, not when the contract has already been approved by the House of Representatives as well as the President.

Besides, there is usually also a clause in the contract requiring the foreign partners to offer their stake to local investors after a certain period of commercial production. Why doesn't the government wait for that moment? It would be in line with the law. It doesn't make sense to do it now while the construction has not even started.

It's not acceptable even though the government uses national interest as the reason for doing it. I don't know what will happen if it keeps using such reasoning. What then is a contract of work drawn up for?

Q: How has the mechanism of transferring a foreign stake to local partners after a certain period worked so far?

A: It is going well. Freeport and Inco are good examples. In principle, the government has to comply with the contract of work. So, if we want a bigger percentage, let's do it within the rules. Once the government breaks the contract, everyone will be worried. It will in turn affect other mining projects.

Q: Who can prevent such a thing from happening?

A: As the contract of work was signed by the President, it's only him who can prevent that from happening. So far it's still only a request from the Ministry of Mines and Energy, isn't it? (swa)