Provinces may receive royalties directly from firms

Provinces may receive royalties directly from firms

JAKARTA (JP): Local administrations soon may receive mining
royalties and deadrent directly from mining companies.

Minister of Mines and Energy Kuntoro Mangkusubroto said on
Thursday he proposed to the government that mining companies
directly pay part of the mining royalties and deadrent to local
administrations to ensure they receive their rights in full.

He said under mining contract of works (COWs), mining
companies are required to pay 80 percent of mining royalties and
deadrent to local administrations, including 64 percent to
provincial administrations and 16 percent to district
administrations. The remaining 20 percent is paid to the central
government.

However, mining companies cannot meet this contractual
obligation due to the governmental regulation which obliges them
to deliver all mining royalties and deadrent to the central
government.

Under the regulation, the central government then distributes
the money to local administrations.

Local administrations, however, do not receive their royalties
and deadrent in full since the money is distributed regardless of
the contributions of each area.

"It must be admitted the distribution of the rights thus far
is not smooth since (the royalties and deadrent) first have to be
conveyed to the central government," Kuntoro said in a speech at
a seminar on mining in Palembang, South Sumatra, a copy of which
was made available to The Jakarta Post.

Pressure has been mounting on the central government to share
revenue from natural resources with the provinces more equitably.

Several natural resources-rich provinces, including Riau, Aceh
and Irian Jaya, have remained poor despite the fact they
contribute a large amount of revenue to the central government.

The provinces, which did not dare object or complain during
the 32-year rule of former president Soeharto, have threatened to
declare independence if the central government refuses them a
greater share of the revenue from their natural resources.

In response to the protests, the government has proposed a
bill on financial balance between the central government and
provincial administrations. The bill currently is being debated
in the House of Representatives.

However, legislators and analysts have criticized the bill for
lacking a clear-cut revenue-sharing formula. They doubt the
government's commitment to empower local administrations, both
politically and economically.

An explicit revenue-sharing formula also is absent from the
government-proposed oil and gas bill currently being debated in
the House.

Kuntoro also said the ministry was mulling replacing the 1967
mining law with a new one which would strengthen the role of
local administrations in mining affairs.

"The new policy's bottom line is focused on giving local
administrations more rights and responsibilities in managing
mineral resources in their respective areas."

Kuntoro also said the government was drafting the eighth
generation COWs, which were expected to address community
development, environmental protection and divestment programs,
issues which were largely absent from previous COWs.

Under the eighth generation COWs, contractors will be obliged
to participate in developing the community around their mining
operations and enhancing the welfare of the local population.
They also will have to pay higher royalties to the government.

Kuntoro said the government also would allow local investors
to bid for mining contract areas using the COW system.

Presently, the COW system is reserved for foreign investors,
while local investors are restricted to the concession contract
system, which is lower than a COW in terms of legal status. (jsk)