Mining Association Rejected the Change from Contract of Work to License

The Indonesian Mining Association (IMA) reaffirmed its rejection of the intended change from the Contract of Work (CoW) scheme to the license/permit scheme as stipulated in the drafted Mineral & Mining Law. The reason behind this rejection is that with the CoW system, investors have better access to project financing due to the equal rights of both the investor and the government. The statement was stated during The Australian Mining & Petroleum Exhibition 2007 in Jakarta by the end of January 2007.

What is hoped by IMA as representation of large mining corporations, almost all are foreign companies, doesn't actually appeared within the statement. Asked about what mining firm wants more than anything from the upcoming new mining law, Australian senior trade commissioner Rod Morehouse answered that it is the "predictability".

"We want predictability. If something is predictable, we know the risks we will be taking. If you don't have predictability, your business is not going to move forward," Australian senior trade commissioner Rod Morehouse told The Jakarta Post on Tuesday.

In no basis have the chairman stated that the permit scheme will not be bankable because the one that is expected by financiers is not the equal position between the government and corporation, but legal certainty and returns. As long as this business gives them profit and their rights as investors are guaranteed they will not be troubled.

All financial institutions will understand that the host government representing the entire citizen should have more power over the country's natural resources. This is a provision of international law on natural resources that has been widely accepted. It's certainly a set back if IMA does not acknowledge such principle yet.

The reason behind intention to sustain the CoW scheme is likely to further maintain the power of corporations over the government. Very often, Indonesian government fails to take firm action against company's violation of environmental law and human rights on fears that company would sue the government through international arbitration which is acknowledged under CoW.

" The government has conducted an amendment to the law in its effort to add value to the country's mining production." Said IMA chairman Arif Siregar who is also CEO of INCO Indonesia.

However, the mining sector of the country that is dominated by foreign actors has so far failed to contribute significantly to the national income. It only contributes less than 5 percent to the total GDP of the country during the period 0f 2001-2006. Not really surprising is the figure because the rate of metal royalty received by the country is only between 1-3% for gold, silver, copper, and tin. Most of the revenues went to the the foreign corporations.

The other cause is because most of mineral products from Indonesia were explorted abroad as raw material. It's therefore lack of significant added value created by mining sector in the host country. This sector has certainly failed to boost the industrialization in Indonesia. The country was then left only as digging zone of raw material exported to developed countries.

JATAM's land use database confirms that Indonesia is undoubtedly just a digging zone as the large scale multinational mining corporations occupy the more than 60 million hectares of land throughout the archipelago. This figure is equal with more than 30 percent of the country's land area making it the biggest concession followed then by timber and large plantation.

Arief also highlighted the lack of coordination between the Energy & Mineral Resources Dept., Environmental Dept and Forestry Dept.

"We don't want all these departments to draw individual taxes from the mining companies. Tax should be collected by the technical department, which is the Energy & Mineral Resources Dept., without any interventions," he said.

This is so typical of mining indsutry which always request incentives and exemption, including to be allowed to mine in the protected forest using destructive open pit technique. Aside from rejecting the tax applied for cutting the forest, mining association also reject the obligation to provide replacement land to be forested. IMA even stated that it will challenge the Forestry Act that bans open pit mining in protected forest.

The Australian Mining & Petroleum Exhibition 2007 that presented speakers from the industry, executives and government officials aimed to find a momentum to improve the mining industry in Indonesia and at the same time to promote Australia's capability in servicing the mining and petroleum industry, according to Andrew Wilson, the President Director of PT BHP Billiton Indonesia.

Australia indeed has so many things 'to do' with the Indonesian administration since most of the new mining projects in Indonesia operated by Australian corporations. There are ten new projects in which seven of them led by Australian corporations i.e; Agincourt, Oropa, Pelsart, MM Gold, Newcrest, BHP Billiton, and Archipelago. Those projects are backed by financial institutions from Australia such as ANZ, Macquaire Bank, National Australia Bank, Commonwealth Bank, and Westpac Banking. BHP is the one that hardly possible to resume operation at its Gag Island nickel concession near Papua. The majority of the island is covered by protected forest so that makes it impossible to carry out open pit nickel mining.

(adapted from various sources by widyantoa)