Govt to impose higher royalties in mining firms

Govt to impose higher royalties in mining firms

JAKARTA (JP): The government will impose higher royalties on
mining contractors awarded new contracts of work (COWs) to
increase earnings from the development of the country's mineral
resources, the Ministry of Mines and Energy's Director General of
Mining Rozik B. Soetjipto said on Thursday.

Rozik said the government would require mining contractors to
give the government about 5 percent of the sales of their mineral
production in royalties, up from between 1 percent and 2 percent
paid by many mining contractors at present.

The new royalty scheme will only be imposed on future
recipients of the eighth generation of COWs being drafted by the
ministry.

"We arrived at the 5 percent royalty after studying royalties
applied in neighboring countries and seeing the financial
strength of mining companies operating in the country and
abroad," Rozik said on the sidelines of the Indonesia Mining 1998
conference at the Jakarta Fairgrounds in Kemayoran, North
Jakarta.

"We don't think the rise in royalties will be burdensome to
them," he added.

Rozik said the ministry was adding finishing touches to the
draft COWs.

Government critics have repeatedly called on the government to
raise state income from mining operations which they claim have
given huge profits to mining contractors and left too small an
earning for the government.

Apart from royalties, the government receives various taxes
from mining contractors, including income tax and property tax.

Rozik said the new royalty scheme would not affect recipients
of the previous generation of COWs. They still have to pay
royalties to the government of the amount stated in their
contracts.

Rozik said the government imposed royalties of between 1
percent and 2 percent of sales under the first to fifth
generation COWs issued to mining contractors. This includes PT
Freeport Indonesia, which is developing a huge copper and gold
reserve in the Grasberg area in Irian Jaya, and Newmont Minahasa
Raya, which is developing a gold reserve in North Sulawesi.

The government changed the royalty scheme for sixth and
seventh generation COWs, which were respectively issued in 1997
and early this year. Under the new scheme, gold mining
contractors, for example, have to pay US$235 per kilogram of gold
in fixed royalties to the government.

Rozik said local mining contractors which sold their products
on the local market had complained about the dollar-based royalty
scheme following the sharp drop of the rupiah against the dollar
since mid-last year. They said they could not afford to pay the
royalties due to the monetary crisis.

"That is also the reason we returned to the sale-based royalty
scheme," Rozik said.

Rozik said eighth generation COWs would also put emphasis on
programs to increase the welfare of communities living around the
mining areas.

Mining contractors will be obliged to propose a community
development program to be assessed in the feasibility study.
Mining companies have to carry out community development
activities based on their proposals.

The previous generation of COWs also obliges mining
contractors to carry out community development, but the contracts
do not give any details on how contractors should carry out
community development programs.

Analysts say several mining companies in the country have bad
relationships with communities living in their mining areas due
to their failure to carry out good community development.

Rozik also said the eighth generation COWs would stipulate
that any dispute involving contractors and the government would
be settled at the local arbitration court and the settlement of
the dispute would be based on the Indonesian version of the
contract.

A COW is written both in English and Indonesian.

Under the previous generation of COWs, the government and
contractors were instructed to settle their dispute at
international arbitration courts in reference to the English
version of the contract.

"It's to promote national pride," said Rozik when asked the
reason behind the making of the new scheme for dispute
settlements. (jsk)