Misplaced criticisms

Misplaced criticisms

We share the great concern of mining consultants and analysts
over what they call misplaced and groundless criticism of foreign
contractors' participation in Indonesia's mining industry. The
criticism should have been leveled against the manner in which
several politically well connected businesspeople -- without any
mining track record to speak of -- tried to bulldoze their way
into mining contracts, such as the Busang concession in East
Kalimantan which holds one of the world's largest gold deposits.

It is no wonder then that many analysts have questioned the
real motive of the criticism launched by, among others, Amien
Rais, Chairman of the Islamic Muhammadiyah organization. He laid
into PT Freeport Indonesia, which has been mining copper and gold
in Irian Jaya since the early 1970s. Such sweeping comments might
incite people, who do not understand the deeper aspects of the
issue, into committing irresponsible acts.

Nobody denies that foreign involvement in mining ventures is a
sensitive matter which requires careful handling because of the
natural wealth at stake and the vast area of land required.
Moreover, mining operations usually take place in remote areas
where most of the local people are poorly educated and rarely
familiar with foreign practices. It is easy to see how mishandled
deals could result in allegations of selling the national wealth
to foreigners.

But the government, we reckon, has, from the outset, fully
appreciated these sensitivities and has accordingly prepared
suitable safeguards to ensure that mineral extractions are
conducted in the most beneficial manner for the country. This
principle has been embodied in the Production Sharing Contract
concept in the oil and gas industries and the Contract of Work
scheme in other mineral industries. Obviously, the terms of the
two types of contract have been amended from time to time, not
only to secure bigger benefits but also to maintain foreign
investor interest in our national resources.

The crux of the matter is that Indonesia is short of the
capital, skills and technology necessary, in what are very risky
ventures anyway, to tap its mineral resources. Neither does
Indonesia command a global mineral monopoly. It should instead
compete with other countries to attract foreign capital and
technology. The results have so far been impressive. The profits
from oil and natural gas, industries which have been developed
mainly by foreign firms, and other minerals have been plowed back
into the development of the economy.

Moreover, the process of negotiating mining contracts is among
the most transparent of all the deals between the government and
private investors. Applications for mining contracts not only
have to pass several layers of bureaucratic examination, but also
have to be approved by the House of Representatives. The process
is quite different, for example, from the awarding of forest
concessions. This is vulnerable to collusion and political
lobbying because the licensing is not subject to stringent public
scrutiny.

Having said all that, we don't mean to imply that the issue of
foreign mining contracts is problem free. Nor are all foreign
mining contractors lily-white investors. They do face problems,
which at times are numerous. They also sometimes cause problems,
notably related to the environment. But the problems are caused
not by the contractual concepts themselves but mostly by
inadequate supervision or lack of competence on the part of
officials in charge of enforcing the contracts. Contractors also
sometimes face difficulties created by officials with vested
interests and irrelevant interventions by the politically well
connected. The latest irrelevant interventions were those which
set off a dispute between Bre-X Minerals and Barrick Gold Corp,
both of Canada.

We support the suggestions that the terms of mining contracts
need periodical review to secure the national interests amid
changes in the industry and keener competition between qualified,
bona fide foreign contractors. But simply demanding that existing
contracts be stopped or reviewed altogether is entirely
illogical, groundless and against the national interest of
developing natural resources for the greatest welfare of the
people.