Govt demands no part of new mining plants

JAKARTA (JP): Minister of Mines and Energy Kuntoro Mangkusubroto said yesterday that the government would not demand a stake in the country's future mining projects despite a planned change in their contracts.

The minister said the emphasis in the new mining policy would be community development in which all investors involved in a mining contract would be required to help develop communities near their mining sites.

He said the new investment formula was currently being prepared by his office and was expected to completed by August.

The new investment formula will be used for the eighth generation contracts of work (COWs).

Kuntoro said the basic difference between the seventh generation COWs and the eight generation COWs was that the new contracts would emphasize the obligation of contractors to develop the communities living in contract areas.

"The new mining policy will refute rumors and speculation that the government plans to apply production-sharing principles and demand stakes in new mining projects," Kuntoro told a media briefing.

Critics complain that the existing mining policy, which only requires investors to pay royalties and tax, provides little benefit to the government. They have urged the government to adopt a production-sharing arrangement in the mining sector, like that used in oil and gas production.

Oil and gas production-sharing contracts stipulate that contractors must give the government between 70 percent and 90 percent of their oil and gas output. The shares include tax.

Former minister of mines and energy I.B. Sudjana issued a decree last year requiring investors to hand over a stake in their mining projects to the government. But he later dropped the policy following sharp criticism from investors, who said giving a stake to the government was not stipulated in the contract.

Kuntoro stressed yesterday that the government would not seek a stake in mining projects, but that contractors should divest their shares into local concerns after a certain operating period.

Government Regulation No. 20 of 1994 states that after 15 years of production, joint ventures between foreign and local investors and wholly owned foreign ventures must divest a portion of their shares to the public or Indonesian companies through the local stock market or direct private placement.

Kuntoro said no country in the world had ever applied a production-sharing contract in the mining sector, making it difficult for Indonesia to find a comparison for such a scheme's application.

Indonesia will not be able to attract foreign mining companies if it uses a production-sharing scheme in the development of its mining sector, he said.

Kuntoro said raising royalty and tax rates would be the most feasible way for the government to increase state revenues from the sector.

The minister said his office was cooperating with the University of Gadjah Mada in Yogyakarta, headed by Lukman Sutrisno, and Monenco Agra of Canada to study an effective community development system to be adopted in upcoming mining contracts.

The ministry is also preparing legislation which would allow local administrations to enjoy more benefits from mining projects.

Ministry data indicates that investment in the country's mining sector totaled US$10.8 billion over the last 30 years, with U.S. companies accounting for the lion's share with $6.4 billion.

The government approved 72 seventh generation COWs last February, but only 38 of the companies have signed their contracts. Five companies have withdrawn their applications and 29 others have requested extensions. The government has granted a three month grace period from June for the 29 companies to sign their contracts. (jsk)