Agitating for asset acquisition
The central government should rein in provincial and regency administrations that have been agitating, sometimes even resorting to threats of violence, to support their demand to acquire a sizeable portion of the assets of resource-based ventures in their areas.
Allowing such a renegade and hostile attitude on the part of regional administrations will only heighten the legal uncertainty about investing in the development of natural resources, validating fears that imbroglios could trap businesses in the regions.
Last week, East Java Governor Saifullah Yusuf threatened to stop access to the West Madura offshore oil and natural gas block in a strong protest against the central government, which turned down the demand of the provincial administration for a 40 percent stake in the oil and gas field.
Saifullah even warned the government that provincial and regency administrations would campaign to turn locals against the oil and gas development.
The government instead approved a request last week for state oil and gas company PT Pertamina to buy 80 percent of the shares and Kodeco the remaining 20 percent of the block.
Late last month, the West Sumbawa regency administration sponsored massive demonstrations against PT Newmont Nusa Tenggara’s (NNT) US$3.8 billion copper and gold mine because it was not allowed to acquire an additional 7 percent stake in the mine.
In North Sumatra, provincial and regency administrations have also geared up for a concerted campaign to acquire the bulk or all of the 59 percent equity (worth about $725 million) currently held by a consortium of 12 Japanese companies in the Asahan aluminum smelting company (Inalum) near Lake Toba.
The government, which owns 41 percent of Inalum, has decided not to extend its joint venture with the Japanese investors that is set to expire in October 2013 and will instead take over the Japanese-held shares.
Following the examples of the West Nusa Tenggara and East Java administrations, the provincial and regency administrations in North Sumatra would also most likely go all out, even using brinkmanship tactics, to get a sizeable portion of Inalum shares.
Regional administrations’ demands for buying shares in resource-based businesses such as mining ventures located in their areas do not make any sense at all as they simply do not have the financial capacity, nor the managerial capability to buy assets worth hundreds of millions of dollars.
Most regional administrations still depend on grants from the government for around 80 percent of their annual budgets. Worse still, most of their financial accountability reports still get qualified opinions and, in many cases, even disclaimers, from the Supreme Audit Agency.
There are therefore strong indications that regional administrations only acted as a front for private business groups buying shares of resource-based companies.
Take for example the acquisition of a 24 percent stake in NNT by the West Nusa Tenggara and West Sumbawa administrations. It was a unit of the Bakrie Group that put up almost all the money for the acquisition.
Likewise, the East Java administration seems to have also lined up several private companies to back up their asset acquisition move.
Even if several of the regional administrations in resource-rich regions have the financial capacity, they should invest their funds primarily in education, health services and basic infrastructure to stimulate private investments and generate jobs.
After all, the regional fiscal law entitled regional administrations to 15.5 percent of revenues from oil, 30.5 percent from gas revenues and 80 percent from forests, fisheries and other minerals.
Allowing such a renegade and hostile attitude on the part of regional administrations will only heighten the legal uncertainty about investing in the development of natural resources, validating fears that imbroglios could trap businesses in the regions.
Last week, East Java Governor Saifullah Yusuf threatened to stop access to the West Madura offshore oil and natural gas block in a strong protest against the central government, which turned down the demand of the provincial administration for a 40 percent stake in the oil and gas field.
Saifullah even warned the government that provincial and regency administrations would campaign to turn locals against the oil and gas development.
The government instead approved a request last week for state oil and gas company PT Pertamina to buy 80 percent of the shares and Kodeco the remaining 20 percent of the block.
Late last month, the West Sumbawa regency administration sponsored massive demonstrations against PT Newmont Nusa Tenggara’s (NNT) US$3.8 billion copper and gold mine because it was not allowed to acquire an additional 7 percent stake in the mine.
In North Sumatra, provincial and regency administrations have also geared up for a concerted campaign to acquire the bulk or all of the 59 percent equity (worth about $725 million) currently held by a consortium of 12 Japanese companies in the Asahan aluminum smelting company (Inalum) near Lake Toba.
The government, which owns 41 percent of Inalum, has decided not to extend its joint venture with the Japanese investors that is set to expire in October 2013 and will instead take over the Japanese-held shares.
Following the examples of the West Nusa Tenggara and East Java administrations, the provincial and regency administrations in North Sumatra would also most likely go all out, even using brinkmanship tactics, to get a sizeable portion of Inalum shares.
Regional administrations’ demands for buying shares in resource-based businesses such as mining ventures located in their areas do not make any sense at all as they simply do not have the financial capacity, nor the managerial capability to buy assets worth hundreds of millions of dollars.
Most regional administrations still depend on grants from the government for around 80 percent of their annual budgets. Worse still, most of their financial accountability reports still get qualified opinions and, in many cases, even disclaimers, from the Supreme Audit Agency.
There are therefore strong indications that regional administrations only acted as a front for private business groups buying shares of resource-based companies.
Take for example the acquisition of a 24 percent stake in NNT by the West Nusa Tenggara and West Sumbawa administrations. It was a unit of the Bakrie Group that put up almost all the money for the acquisition.
Likewise, the East Java administration seems to have also lined up several private companies to back up their asset acquisition move.
Even if several of the regional administrations in resource-rich regions have the financial capacity, they should invest their funds primarily in education, health services and basic infrastructure to stimulate private investments and generate jobs.
After all, the regional fiscal law entitled regional administrations to 15.5 percent of revenues from oil, 30.5 percent from gas revenues and 80 percent from forests, fisheries and other minerals.
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