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[UGM] Mining Company Divestment Could Have a Negative Impact on the Investment Climate

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The government is asked to be more careful and careful in implementing the policy of divesting mining shares owned by foreign companies that have been operating in Indonesia. Although the divestment policy is part of the mandate of Law No. 4 of 2009 concerning Minerals and Coal. This is because the share divestment policy which requires the government to own up to 51 % shares is very risky of draining APBN funds and could even have a negative impact on the investment climate in the future.

This emerged in the Public Discussion entitled 'Mining Divestment Negotiation Politics: Benefits and Welfare for Whom?' which took place in the Digital Library room, Fisipol UGM, Thursday (9/3). The discussion, which was organized by the Research Unit of the Department of Politics and Government (Polgov) Fisipol UGM, presented several speakers, including Natural Resource Governance Institute researchers, Emanuel Bria, Director of Energy, Mineral and Mining Resources, Bapenas, Josaphat Rizal Primana, and Tax Manager of PT Freeport Indonesia, Mukhlis.

Emanuel Bria said that the regulation on divestment of mining shares means that foreign companies that are already operating are required to relinquish some of their share ownership to the government. According to him, this regulation could have a negative impact on the negative image of Indonesia's investment climate. "This policy threatens the investment climate in the future, even though the majority of investment in Indonesia is foreign investment," he said.

Learning from experiences found in the field, the policy of divesting mining shares in the regions is often exploited by conglomerates on behalf of the government. "The divestment of company shares is often used by Indonesian conglomerates, often the funds come from foreign loans," he explained.

Regarding the discourse for the government to divest 51 percent of PT Freeport Indonesia's shares, Emanuel Bria admitted that this policy was very risky because the funds required were not small. "Just half of Freeport's total shares is equivalent to 40 percent of the health budget, imagine that is the budget of all hospitals in Kalimantan, NTT and Sumatra. "Moreover, later the government will buy it using APBN funds," he explained.

The government needs to consider state revenues outside of divestment because it already gets funds from royalties, taxes and the availability of job opportunities. "There are options for the government other than divestment, namely implementing high taxes, opening job opportunities, building smelters. "In negotiating work contracts with foreign companies, it is necessary to emphasize what the government's priorities are," he said.

According to him, currently the government is focusing on stable tax revenues and creating a positive investment climate while building more efficient BUMN and other Indonesian companies. "I think the timing is not right, we are reducing investment from outside but our BUMN cannot compete yet. "Don't turn off the sale of mining company shares which could hinder investment," he said.

Josaphat Rizal Primana from Bapenas said that the policies implemented by the Joko Widodo and Jusuf Kalla governments are currently very proactive. However, the divestment policy is a mandate from the 2009 Mining and Coal Law. He does not agree that Freeport is managed by BUMN because the majority of BUMN have not provided maximum benefits for the country and are even unable to compete with BUMN belonging to neighboring countries. In fact, the conditions for divestment can be carried out if BUMN and BUMD are efficient and transparent. "Many of our state-owned companies are making losses, only a few are making a profit for the country," he said.

PT Freeport Indonesia's tax manager, Mukhlis, said that Freeport, which has been operating since 1973, has provided income to the state of 16.6 billion dollars. “A total of 16.6 billion dollars has been given to the state from 1992 until now. This company employs 12,184 workers involving around 35 percent of indigenous people (Papuans). "The total funds that have been given to the community are 1.46 billion dollars," he said.

As a multinational mining company, said Mukhlis, Freeport needs legal guarantees and certainty of work contract extensions from the state so that this company continues to develop in the long term. (UGM Public Relations/Gusti Grehenson)