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)