House members again urge changes to COWs
JAKARTA (JP): House members have again raised the controversial issue of the need for the government to have a stake in mining companies.
Legislators Iskandar Mandji of the dominant Golkar party and Amru Al Mu'tasyim of the United Development Party (PPP) hinted last week that House members would make changes to the seventh generation contracts of work (COWs) to give the government a stake in new mining companies.
"Honestly speaking, for the moment, I want a change in the contents of the (seventh generation) COWs as to give more benefits to the state," said Mandji at a hearing between the Ministry of Mines and Energy and House Commission VI early last week.
They said the government would have more benefits and more control over mining ventures if it had a stake in them.
A heated controversy arouse last month after the Ministry of Mines and Energy moved to add 16 points to contracts awarded to 164 foreign and local mining companies in September last year.
Two points especially drew strong reactions from mining companies. One was related to the demand that contractors give the government a free 10 percent share before mining even started. The second was the right for the government to share capital gains from overseas share issuances.
The ministry, however, dropped its demands and left the contracts as they were as criticism grew.
Minister of Mines and Energy I.B. Sudjana delivered the 164 seventh generation COWs to the House during the hearing.
The COWs are subject to House endorsement before being taken to the President for final approval.
Mandji noted that the ministry's recent proposal to change seventh generation COWs to allow the government a 10 percent stake in mining projects was in line with the House's request.
"The proposal is actually the House's. What the minister (I.B. Sudjana) was proposing was our aspirations," he said.
Mining experts, including former senior officials of the Ministry of Mining and Energy, also questioned the ministry's move to revise the contracts because all contract terms had been approved both by the ministry and the contractors.
They said the government should have applied the new rules to the next generation COWs and left the seventh generation COWs as they were.
Mandji wants the changes added to the seventh generation COWs.
A clause allocating the government a stake in appointed mining companies should be added to the COWs, he said, adding that the government could appoint state-owned companies to acquire a stake.
Amru supported Mandji's view but insisted the government or state-owned companies should not be given a free stake.
"The government or state-owned companies should buy the shares. It's no longer the time to get shares for free." he said.
According to the existing law, foreign companies are required to divest a portion of their shares to local companies after 10 years of operation.
Mandji acknowledged that before they gave recommendations on the contracts, House members previously had not carefully studied COWs.
House members should, therefore, be more careful in studying the seventh generation COWs in order to prevent scams like the Busang case.
"I don't want the people to curse the House of Representatives for giving wrong recommendations, as in the case of Busang (mining project)," he added.
The government was widely criticized for its weak position in the Busang mine contracts, with critics saying the government should have at least a 10 percent stake in the Busang mine.
After months of maneuvers, the government was able to get a 10 percent stake in the mine.
The Busang gold field in East Kalimantan was touted by its founder, Canadian firm Bre-X Minerals, to be the biggest gold find of the century with a total gold reserve of more 70 million ounces.
But Independent analyst Stratchona Mineral Services Ltd later announced the Busang area contained only traces of gold, saying Bre-X had tampered with the core samples taken from the area. (jsk)