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bservers hailed the government’s decision to renegotiate mining contracts with foreign companies, saying that the current contract model was obsolete and impaired the country’s potential to attain maximum benefits from its natural resources.

University of Indonesia mining expert Kurtubi said that there was no reason for the government to maintain the current contract model if it wanted to boost state revenues from the mining sector in the future.

“Under the current model, foreign companies only pay a very small amount of royalties to the government, between 1.5 and 3 percent. That’s absolutely a loss for the country,” he told The Jakarta Post in a telephone interview on Friday.

If the government was serious in proceeding with the plan, it should raise the royalty percentage to around 16 percent, he said, arguing that the amount was rational as the natural resources mined by foreign companies were owned by the nation.

Kurtubi said that in addition to increasing royalties, the government could also oblige the companies to divest 51 percent of their stakes to the government. With such policy, the government would receive significant revenues from dividends paid by those companies.

“The best example of how that mechanism works well is the divestment of PT Newmont Nusa Tenggara’s [NNT] 51 percent stake. This model is a win-win solution. Both foreign investors and the government are happy,” said Kurtubi, who was also an NNT commissioner.

Under a mining contract signed in 1986, the company’s foreign shareholders, American mining giant Newmont and Sumitomo of Japan, had to divest 51 percent of their shares to local investors after five years of commercial operation. The contract also stipulated that the foreign shareholders should offer the stake to the central government first before allowing local governments or domestic investors to acquire shares.

President Susilo Bambang Yudhoyono had earlier announced the government’s plan to renegotiate contracts with foreign mining companies. He said the government was currently studying all existing contracts to determine whether they benefit both the government and investors.

“If the contracts violate the sense of justice, there is room for us to renegotiate clauses,” he told reporters at the Presidential Palace on Wednesday as quoted by Kontan.

State-Owned Enterprises Minister Mustafa Abubakar clarified that what the President meant by “contracts” were those related to mining iron ore, nickel and coal.

Finance Minister Agus Martowardojo said that the renegotiation plan was very important to increasing the country’s revenues from the mining sector.

Coordinating Minister for the Economy Hatta Rajasa assured that the renegotiation process would run smoothly and would not hamper the interests of foreign investors, adding that all processes would refer to the 2009 Mineral and Coal Mining Law.

In a bid to improve the investment climate in the mining industry, the Energy and Mineral Resources Ministry is currently auditing existing mining permits across the country because apparently more than half of them were issued without following the proper legal procedures set by the government.

The government also decided to temporarily halt the issuance of new permits to allow the audit process to run more effectively.

According to the ministry’s data, of the 8,475 mining licenses registered at the ministry, 4,504 were problematic.

Kurtubi said that the policy was a good move because many local administrations issued mining licenses without concern for the country’s national interests or environmental balance.