'Govt knows what to do with mining projects'

'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.