MAC: Mines and Communities

Indonesia: House Speaker urges immediate review of mining contracts

Published by MAC on 2006-08-04

Indonesia: House Speaker urges immediate review of mining contracts

4th August 2006

Ridwan Max Sijabat, The Jakarta Post

House Speaker Agung Laksono joined growing calls Thursday for the immediate review of production-sharing contracts granted to multinational corporations to ensure they provided optimal benefits to the state and public.

He said contracts should be terminated with foreign companies that failed to honor contract stipulations, did not contribute sufficient funds to community development programs and caused environmental degradation.

"Mining contracts granted to PT Freeport Indonesia in Timika, Papua, ExxonMobile in several provinces and to domestic companies in protected forests should be reviewed because they provided lower contribution to the state and locals," Agung said.

He was responding to the increasing opposition to this year's granting of a contract to ExxonMobile to operate the potentially lucrative Cepu oil and gas field in Central Java. The appointment of the U.S. multinational followed a protracted and acrimonious tussle with state oil and gas firm PT Pertamina.

Critics say some groups whipped up nationalistic sentiments during the dispute, especially as it drew to a close.

An alliance of 109 politicians, including former People's Consultative Assembly speaker Amien Rais, former Finance Minister Fuad Bawazier, environmental activists, retired servicemen and former government officials grouped in the Popular Movement for Salvaging of the Cepu Block (GRPBC) filed a class action Thursday against the government for granting the right to the U.S. multinational.

A group of leading lawyers filed the suit at the Central Jakarta District Court.

Agung said the review was crucial due to the lack of supervision from the government of the multinational corporations' operations, damage to the environment and their small contribution to local community development.

"The review should first be conducted by relevant ministers to ensure a comprehensive evaluation," he said.

On Wednesday, the Energy and Mineral Resources Ministry's director general for oil and gas, Luluk Sumiarso, said the government was devising a new policy to increase the ownership of local companies in the oil and gas sector, and also ensure more benefits to surrounding communities.

Environmentalists and politicians have expressed opposition to the renewal of Freeport's mining contract because they claim the allocation of 1 percent of the company's annual profit to local community development has failed to improve the welfare of local tribes. They also allege massive environmental pollution at the site.

"Ideally, the giant foreign mining companies should give a small part of their shares to local communities, aside from their contribution to local community development," Agung said.

He also regretted the House's approval in 2003 of the government's granting of contracts to 43 mining companies to operate in protected forests.

Meanwhile, the executive director of the Indonesian Environmental Forum (Walhi), Chalid Muhammad, urged the House to review the government's policy because of a lack of concern for environmental protection.

"The granting of contracts or forest concessions to foreign and domestic companies has benefited only certain government officials and political parties, instead of being based on environmental and local development considerations."

Chalid, along with other activists participating in the class action, also said the government must take responsibility for the disastrous May 29 mudflow accident at a gas well in the East Java town of Sidoarjo. It has caused huge losses to industry in East Java due to the disruption of distribution routes and forced the evacuation of surrounding communities.

"The ... incidents are strong evidence that densely populated Java is not feasible for such large mining activities ..." he said.

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