Kuntoro Mangkusubroto: Dilemma, Decentralization, Divestment, CSR

TEMPO.CO, Jakarta - Dr Kuntoro Mangkusubroto, former energy and mines minister and former CEO of state-owned mining companies Bukit Asam, Timah and electricity company PLN shares his views on current issues besetting the mining industry with Melati Kaye and Syari Fani. Excerpts:

Why is divestment such a controversial issue? Based on your experience in the mining sector, can the divestment process be changed or improved?

Our law on mining, oil and gas states that after five to 10 years, foreign companies must give national parties some stake in their companies. The question is who is the national party? The state? Companies? Now, with decentralization, can regional companies be defined as national? The distinctions are not clearly stated, and some foreign companies make use of this situation for their own benefit, while others are confused about who to deal with. Which government? Which 'national' company?

The government now requires mining companies to build smelters. How much value-added will this bring to companies?

Indonesia is basically an extractive country. For a nation to grow on its own footing, you must add value. But do not assume that all minerals are the same. Tin becomes a welding rod and ornaments-these products are too far down the value chain. Ingots are fine. But how pure should we produce our tin: 0.99 or 0.999? At Timah, every time I added another nine on the percentage, the price went up. Can this be applied to gold? Yes, but not coal. All you do with coal is burn it.

That is the problem with [the smelting requirement]. A government regulation should define the refinement level and the types of smelters that are allowed. It should be based on the vision of an engineer together with a businessperson, who understands the technical side and the market.

But do we really need smelters?

No question, but not all minerals need a smelter and not all smelters are in the same category. For example, nickel is basically not a mining process, but an industrial one. The investment for a nickel smelter is close to 90 percent of the whole investment in the value chain.

So which minerals earn a high enough profit just in their raw form?

Coal, uranium, zircon shouldn't be smelted. Maybe bauxite needs smelting. For sure nickel, but treat nickel not as mining, but as an industry. So Inco, Vale, Weda Bay, should not be treated as mining operations but as an industry. Law No. 41/1999 on Forestry prohibits open pit mining in protected forests, but President Megawati exempted mining contracts that were previously granted.

How can the two laws be reconciled?

As long as the conservation forests are unaffected, it's okay. That means you have to have an underground mine. So I am for conserving forests, but I must respect the 14 companies that have received exemptions by giving them the leeway of doing underground mining.

Mining involves many land conflicts, how should the government address this? 

In the New Order, central government handled land acquisition. Suharto said, "go and mine there," no questions will be asked. People were pushed out by the military, while companies came and acting like kings. Now we are at the other extreme. The law says companies must deal with the people. But if they're operating on a 1,000-hectare land, that's 100 families to deal with!

Decentralization has caused overlapping regulations. Should the government go back to a centralized system?

No need for that. The most important thing is to improve our mechanism. People at the regional level who are handing out licenses are under-educated.

Can they be regulated?

Test them. Are they geologists? If not, remove them. But in regencies where people are really smart, upgrade them, give them knowledge, technology. So, again, do not generalize.

CSR is about development. Based on your experience in Aceh and other areas, how would you advise companies about CSR?

Poor people are involved. Mining activities are never in towns. Local people see a guy come in a jeep or jump from a helicopter and they ask, "Why are they digging our land? What do I get from it?" But often, they don't get anything from a company that has been operating for five to 10 years, right in their front yard. Of course they will protest. That's where CSR comes in. Always start with health and education. You will see that for school children to learn, they need light, which comes from electricity. In order for health clinics to run well, you need medicine, good medical doctors.

Few mining companies choose environmental conservation as their CSR. Why?

They are committing suicide but they don't realize it. CSR is their insurance to exist peacefully with the environment. In mining, you disrupt peoples' lives from day one. You track dust, cause water levels to drop. Mining is very difficult. People just watch the success stories. They don't know that out of 100 operating mining companies, only one succeeds. (*)