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)