Shoeb Kagda, Jakarta – The ongoing controversy between one of Indonesia's largest foreign investors and the country's legislators is threatening to undermine the country's standing among foreign investors, and could disrupt its long-term economic revival.
Amid allegations of corruption, the House of Representatives (DPR) Commission Five on Monday demanded that the government renegotiate its contract of work (COW) with gold and copper mining company PT Freeport Indonesia in Irian Jaya to secure greater benefits.
The demand, if carried out by the government, could have a chilling effect on future foreign investments in Indonesia especially in the lucrative mining and oil and gas sectors, an analyst told BT. The House Commission Five for mines and energy said it would set up a team to assist the government to renegotiate the COW with PT Freeport in the near future. The COW is due to expire in 2022.
The commission also urged PT Freeport's parent company, US-based Freeport McMoran Copper & Gold Inc, to comply with the divestment terms of the 1991 COW which obliges it to sell up to 51 per cent of its shares to Indonesian companies or the government within 20 years of signing the contract. But new investment regulations introduced in 1994 eased mandatory divestment requirements for foreign companies.
"We are very worried that such demands will be extended to other projects if the legislators find problems with the approval process," said one Western investment adviser who is working closely with the government to attract foreign capital. He added that legally, the COW signed by PT Freeport is water-tight but that political motives were behind the calls in Parliament. "It seems to me that certain people who were excluded from the deal with PT Freeport are frustrated and are therefore putting the heat on Mr Ginandjar and the project."
The controversy was triggered last week by US political analyst Jeffrey Winters who said that Ginandjar Kartasasmita, the Coordinating Minister for Economy, Finance and Industry, should not head the government's anti-corruption campaign due to accusations of collusive practices concerning PT Freeport during his tenure as mines and energy minister from 1988 to 1993.
Mr Ginandjar has vigorously denied these accusations and voluntarily handed over data and files containing information on the Freeport agreement to the Attorney-General's Office on Monday.
Political analyst and former cabinet minister H S Dillon, however, noted that at the heart of the issue is a move, by certain political factions aligned to President BJ Habibie, to discredit Mr Ginandjar and his team ahead of next month's special session of the People's Consultative Assembly (MPR).
"The current cabinet has been put together by Mr Ginandjar and if he is removed because of this episode, than the Habibie camp will have a free hand in forming its own cabinet. With this attack on Ginandjar, the bugle has been blown and the battle has begun," he said. Mr Dillon added that although foreign investors were not the direct target, they could be scared off if the government back-pedals on its contracts due to political motives.
In a written reply to questions from BT, PT Freeport denied that there had been any corrupt or collusive practises involved in the negotiation and signing of the agreement. The statement added that contrary to the press reports, the DPR concluded that it would only review the internal distribution by the government of the taxes and royalties paid by the company and not the contract itself.
"Freeport Indonesia's COW, like all approved COWs, has no clause allowing either signatory to reopen, or renegotiate the terms of the contract," the statement noted. The company was the largest corporate taxpayer in Indonesia in 1996, paying US$273 million in taxes, royalties and dividends to the government. Last year, the company paid US$187 million (S$302.9 million) in taxes and an additional US$50 million in royalties and dividends. "In addition, Freeport voluntarily provided US$33 million for social programmes that benefited the local area around our mine," said the statement.