Govt urged to learn from 1974-1985 mining experience
Govt urged to learn from 1974-1985 mining experience
JAKARTA (JP): Mining analysts have urged the government to
learn from the country's mining conditions from 1974 to 1985,
when not one mining contract of work (COW) was awarded to foreign
companies.
"During that time the government's COW was so unattractive
that not a single foreign investor was interested in developing
minerals in the country," M. Simatupang, the vice president of
the Indonesian Mining Association, told The Jakarta Post
yesterday.
Simatupang was commenting on several analysts' suggestion that
the government review its contract of work policy because it
benefited foreign companies more than Indonesians.
The contracts of work, which the government has applied since
1967, stipulate the technical, financial, fiscal and legal
obligations that a foreign contractor must meet to explore and
exploit minerals such as gold, silver and copper. A contract of
work must be approved by the President after being discussed by
the House of Representatives.
Simatupang said that, under current regulations (Law
No.1/1967), foreign investment in mining operations should be
based on a contract of work with the government or a cooperation
agreement with a state enterprise.
He said that from 1974 to 1985, when the government tried to
promote its so-called third and fourth generation mining
contracts of work, the government slapped a windfall profit tax
on foreign investors. This was on top of its requirements for the
government to share in projects, corporate taxes and mining
royalties.
"I don't know the precise rate of the windfall profit tax but
it was certainly higher than the corporate tax rate," he said.
The Philippines had also suffered a lack of foreign investor
interest in its mining sector until it improved its contract of
work system last year, he said.
"Malaysia and Thailand once applied an open tender system to
develop their mineral deposits, but they failed to attract as
many foreign investors as they had hoped.
"We should bear in mind that, once we make contracts of work
less attractive, foreign investors will find other countries in
which to mine," he said.
Soetaryo Sigit, a former senior official at the Ministry of
Mines and Energy and the architect of the contract of work
system, emphasized the contract of work's role in wooing badly-
needed foreign investment to the mining sector.
"We don't have enough money and technology to develop our
country. We, therefore, must invite foreign investors," he told
the Post.
Foreign mining contractors account for 100 percent of the
country's crude copper production, 93 percent of its gold output,
89 percent of its silver output, 25 percent of its tin output and
almost 70 percent of its coal production. Foreign oil contractors
also dominate the hydrocarbon industry.
"We must admit that high-risk mining activities are still
unattractive to domestic investors not only because they have
limited capital and technology but also because they are not very
familiar with mining operations," he said.
Soetaryo stressed the importance of formulating contracts of
work in a way that benefited the government and foreign
contractors.
The government is planning to approve 70 contracts of work,
which are included in its so-called sixth generation contracts of
works. Two of the 70 contracts have been applied for by Bre-X
Minerals of Canada to mine the Busang II and III gold deposits in
Busang, East Kalimantan.
Tadjuddin Noer Said, a member of the House budgetary
commission, shared Soetaryo's view. But he said that contracts of
work should be clear-cut from the beginning to create legal
certainty.
"I agree with the contract of work policy but I think we can
still make it better," he said. (bnt)