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.