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)