Weak deals entice miners to defy order

Alfian ,  The Jakarta Post ,  Jakarta   |  Fri, 09/12/2008 10:55 AM  |  Business

The refusal by five coal producers to provide a goodwill payment has underscored the degree to which the government remains powerless when attempting to regulate the industry's politically connected companies.

The Finance Ministry's interim director for state credit Soepomo said Thursday the companies accused of withholding government royalty payments had yet to fulfill their initial pledge to pay Rp 600 billion (US$65.5 million).

The payment was supposed to be a show of goodwill on the part of the companies, as well as a guarantee to immediately resolve the dispute, which has gone on for more than three years.

"As of today, we haven't received any of the money," Soepomo said during a discussion of the coal royalties.

PT Kideco Jaya Agung, PT Kaltim Prima Coal (KPC), PT Arutmin Indonesia, PT Berau Coal and PT Adaro are among the six companies allegedly withholding the royalty payments as ransom until receiving a tax refund from the government.

Another company, PT Kendilo Coal Indonesia, currently in talks with the government over its obligation to pay royalties, has decided not to pay the goodwill commitment, as it may discontinue production.

On Sept. 1, the State Development Finance Controller (BPKP) announced the five companies had agreed to pay the Rp 600 billion in advance without, however, providing a deadline.

BPKP chairman Didi Widayadi warned the deal was legally binding, with any violation carrying legal consequences.

According to the agreement, Kideco agreed to pay Rp 110 billion, with KPC agreeing to Rp 150 billion, Arutmin Rp 100 billion, Berau Coal Rp 90 billion and Adaro Rp 150 billion.

However, nearly two weeks after the deal was signed, none of the companies has fulfilled its pledge.

"We opened a bank account before the deal was even signed. The companies could simply transfer the money, if they really wanted to fulfill their promise," Soepomo said, adding the BPKP should have specified a deadline in the agreement.

The dispute between the coal producers and the government escalated in early August when the government banned 14 executives from the six coal companies from traveling overseas over allegations their companies failed to pay royalties amounting to Rp 7 trillion (US$769 million) between 2001 and 2007.

The mining companies have denied any wrongdoing, saying the royalties were withheld to compensate for value-added tax (VAT) refunds owed to them by the government.

Following a series of negotiations, the government agreed to honor the contracts, allowing producers to claim the VAT refunds on the condition they paid the royalties.

BPKP is currently auditing both parties' obligations. Padjajaran University's Romli Atmasasmita, a prominent legal expert and one of the speakers at the discussion, said the state should have been tougher with the coal producers, including establishing a clear deadline for the payment of the goodwill commitment and the royalties.

"Their decision to forego the royalty payment constitutes an act of corruption because they enriched themselves and caused state losses from the penalties the companies should have paid," Romli added.

Related authorities should confiscate the companies' assets in exchange for the royalty payment, he said.

Under existing regulations, the government has the authority to confiscate assets and imprison debtors without trial should they refuse to settle their bill within one year of the first warning letter being sent.

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