Sudjana will not force COW changes

Sudjana will not force COW changes

JAKARTA (JP): Minister of Mines and Energy I.B. Sudjana said
yesterday the government would seek, not force changes to mining
regulations which would oblige foreign mining companies to grant
10 percent of their ventures to the state.

He said the government would continue to uphold 1967 Mining
Law No. 11 and 1994 Government Regulation No. 20 which allows
wholly-owned foreign investment ventures.

"But there has been some public pressure for the state to have
at least a 10 percent stake in mining ventures owned by foreign
companies," Sudjana told reporters before the monthly cabinet
session.

Most analysts and foreign investors consider the proposed rule
to oblige foreign companies to give 10 percent to the state to be
in conflict with Government Regulation No. 20.

"We will consult the House of Representatives to see whether
it needs to be changed or if it is only the regulation which
needs to be amended to allow the government to get at least a 10
percent stake in foreign mining ventures," he said.

The divestment, according to mining officials, is one of the
16 points proposed to be entered into seventh generation
Contracts of Work (COW) which mining officials have yet to
consult the House on and have approved by the President.

Director General of Mines Adjat Sudradjat said last week and
early this week that the ministry proposed that the 176 seventh
generation COWs, which were initialed by mining officials and
contractors in Sept. 1996, be amended to accommodate the new
policy.

Foreign companies reject any changes to their draft COWs
because they were negotiated with and approved by former director
general of mining Kuntoro Mangkusubroto.

Kuntoro was stripped of his authority to initial draft COWs by
Sudjana in Oct. 1996, one month after the initialing of the
seventh generation COWs, and was replaced by Adjat in April.

Informed sources said Kuntoro tried to block the proposed
changes to the draft COWs.

Foreign investors expected only minor changes would be made to
their draft contracts when officials took them to the House of
Representatives and the Investment Coordinating Board for
discussion.

Procedure

In a related development, Chairman of the Association of
Indonesian Mining Professionals (Perhapi) Herman Afif Kusuma
suggested yesterday that the government make the changes to the
next generation of COWs, not the already initialed seventh
generation ones.

"The association thinks the proposed policy changes are good
for the national interest. But it's better not to enforce them
now because their legal basis (is weak) and technically we should
study their (potential) impact on foreign investment," Herman
said after a hearing with House Commission VI for mining and
industry.

He said the association could accepted in principle the
government's proposition that the state, through state-owned
companies, get a percentage of foreign mining venture shares on a
free-carried interest basis.

He said the association could accept this because the state
was the sole owner of the country's natural resources and
therefore the proposal was in accordance with the law.

"But, the government should follow legal procedures to realize
it," said Herman.

Herman said that the 1994 government regulation allowed the
ministry to oblige foreign mining operations to make a divestment
provided it was first discussed with the Investment Coordinating
Board.

"Has the ministry consulted with the board?" asked Herman.

But Herman also said the proposed policy changes had several
flaws, including the government's request for a share of capital
gains made by foreign contractors from any overseas share
issuance.

"Let's not talk about capital gains if we don't understand
what they are," he said, adding that the ministry should have
discussed the policy with related government offices before
announcing it. (jsk)