Govt demands no part of new mining plants

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)