Govt warned to be careful in Busang mine contract

Govt warned to be careful in Busang mine contract

JAKARTA (JP): An economic advisory group has warned the
government to be careful in its dealings over the disputed Busang
II gold mine in Kalimantan.

Arif Arryman, the managing director of Econit, said yesterday
the government should not make the same mistakes in the Busang II
gold mine concession as it did in the Grasberg concession in
Irian Jaya.

"In the (PT Freeport Indonesia's) Grasberg concession, the
contract resulted in the biggest benefits going to the foreign
investor. The government and the locals did not achieve a
significant gain from the copper, gold and silver mines there,"
he said.

Arif was referring to the activities of PT Freeport Indonesia,
an affiliate of New Orleans-based Freeport-McMoRan Inc., which
has 2.63 million hectares of gold and copper mines in Irian Jaya.

Freeport got its first 10,000-hectare concession in 1967 and
became the first foreign investor in Indonesia under President
Soeharto's administration.

Freeport's contract gave the government a 1.5 percent to 3.5
percent royalty from net copper sales and a 1 percent royalty
from net gold and silver sales. The contract was renewed in 1991.

"These figures are much lower than the average royalty applied
by neighboring countries such as Thailand, Vietnam, Malaysia and
the Philippines. The governments in those countries get between 2
and 15 percent in royalties for copper, silver and gold," Arif
said.

The government's stake in Freeport is also very small, he
said. In the renewed contract it was agreed that 10 percent of
Freeport's shares belonged to the government and 10 percent
belonged to, PT Indocopper Investama Corp., a private Indonesian
firm.

"But without any clear reason, Indonesia's shares continued to
decline, reaching only 9.36 percent in 1995," Arif said.

"These mistakes must not happen again in the Busang gold
concessions," he said.

The mining contract for the Busang II gold mine, with an
estimated 57.33 million ounces of gold, is being fought for by
Canadian mining companies Bre-X Minerals Ltd. and Barrick Gold
Corp.

Both companies have joined with politically well-connected
local partners in hope of winning the contract.

After Bre-X signed up Sigit Hardjojudanto -- President
Soeharto's eldest son -- as its local partner, it was predicted
that Bre-X would get the contract.

But the dispute took a new twist when Barrick and its powerful
local partner, Siti Hardijanti Rukmana -- Sigit's sister -- came
on board.

Apart from Sigit and Siti, the sons of several ministers are
also on the list of the two firms' partners. The government has
also requested a 10 percent share in the mine.

House of Representatives members have said mining operations
cannot start unless the House approves the contract.

Arif said the battle over the Busang II mine had reached a
point where public interest was no longer regarded.

"Why is it that the gold reserves in Busang seem to be the
right of only the parties in dispute? Doesn't the public also
have a right to it?" he asked.

He criticized the government for not reviewing mining laws,
which were issued in 1967.

"Until now, the government does not have transparent and
consistent policies to regulate and optimize the utilization of
natural non-oil and gas resources," Arif said.

Arif said the government should strengthen its bargaining
position. "We have world-class potentials," he said.

He said if the government got an 85 percent economic rent from
the oil and gas sector as it does now, it should be able to get
the same from the mining sector.

"It all depends on the government's political will, whether it
wants to do things right or not," he said. (pwn)