'Govt knows what to do with mining projects'

The government has been under fire recently over its plan to develop the Busang gold mine in East Kalimantan with a Canadian joint venture. Critics said the government should postpone the project until it can work it out by itself. Analyst Mohammad Sadli responds to what he considers groundless criticism.

Question: How do you respond to such criticism?

Answer: I do not follow what Amien Rais or Econit (a private research institute) thought about the Busang gold mine project. They consider it to be a treasure and that giving it to anybody else is unwise. But it's not a treasure. This line of thinking is naive. There is still a lot of work and money needed to turn it into one. The process, both of exploring and exploiting the mine, is also difficult. If it was easy, we would have found the gold mine long time ago.

I also believe that the government's share of the project is not of great importance. I'm not interested in investing in such a project. It's risky. Moreover, a bigger percentage also means a bigger investment. How will the government obtain the money to pay for the share?

It would be good enough if the government applied optimal -- not maximal -- taxation for the mining company.

Q: Why not maximal taxation?

A: Maximal taxation will only discourage foreign mining companies to bid for such a project. I remember reading a statement in a newspaper saying that there was no working contract signed from 1974 to 1984 because the government imposed too tough requirements, including taxation.

The working contract scheme eventually changed from generation to generation. Each generation, in making changes, always adds up the requirement, especially in the field of finance. As a result, the requirement is then too high to deal with.

What I'm trying to say is that it's not true if we think the government is stupid and is ignoring people's welfare.

Q: What do you mean?

A: The government has been considerate. It knows what is possible and what is not. Once the government tried to apply aO 'windfall profit taxation' whenever gold prices increased, but no company accepted the scheme. Even increasing tax rates slightly could prompt the company to withdraw from the project. It's us, therefore, who suffer a loss because the gold reserves will stay unexplored.

It's also worth noting that making changes on working contracts will ruin the good reputation Indonesia has in the mining field. Bre-X has had a working contract already passed through the House of Representatives and is just waiting for the President's approval.

Q: Why is this?

A: It's because they are gold mines. The word 'gold' has always been thought of as treasure. The Busang working contracts are still being respected which means that no change has been made. But there is an effort to persuade the contractor to choose a particular working partner.

Q: It's not ethical, is it?

A: It's political. Of course it's not normative. Again, because it's concerning gold, a very big amount of gold, people become greedy and are not afraid to use their political influence to get something from it. It's nothing but fighting over treasure.

They seem so certain that the mines can be exploited maximally. I hope this is true and some believe so, but huge funds are needed. For example, the development of infrastructure requires more than US$1 billion to complete. It's obvious that our government cannot afford it. That's why I'm still wondering how the government will pay for the share no matter how small it will be.

Apart from the controversy, if the Busang projects work Indonesia will stand up with some of the world's biggest-gold producing countries. Hopefully we will be the fourth largest after the Soviet Union, South Africa and Australia. The mining sector in Indonesia will also improve because of these projects. The government, at least, will benefit from taxation. The local administration will also be able to enjoy developments in infrastructure. This will give economic added value to the area.

Q: According to some sources, such a company is usually reluctant to pay tax ...

A: That's not true. They pay it. You can check with the Directorate General of Taxation. There are no such alleged problems. If they ask about why the tax wasn't spent for the benefit of local people, they're asking an absurd question. Even between the indigenous people in the area and the local administration, there is a conflict. It's not proper to think of it in such a local context. This is what NGOs usually look for.

Of course we are not supposed to ignore the problem. We need to be compassionate too. But I think we will never resolve the problem properly because there is always a cultural gap. As you see, such a project is usually located in a remote area. Those not living in remote areas usually do not face the same problems.

Therefore, we cannot generalize things. The problem of social jealousy should not be generalized. Generalization always has political context. Every case has to be treated as a single case and should take into consideration empirical aspects.

In the case of Freeport, for example, is it the government or Freeport which is doing more for the local people? (swa)

Mohammad Sadli is a prominent economist and a former cabinet minister.