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NEWS UPDATES Asean Affairs        4  June 2011

Yudhoyono proposes renegotiation with foreign companies

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President Susilo Bambang Yudhoyono's call to renegotiate contracts with foreign companies received mixed reaction on Friday, with some industry players calling it an empty threat.

The president said in a speech on Wednesday that the government would review and rework contracts with foreign companies, claiming the country's robust economy should give it more bargaining power. Finance Minister Agus Martowardoyo later gave more specifics, saying the government would review energy contracts.

While some lawmakers lauded the speech, saying it was high time for the government to get tough with foreign firms, analysts and business players warned that the move could discourage foreign investment.

Fauzi Ichsan, an economist at Standard Chartered Bank, said Indonesia should rework its contracts in line with the agreements' existing renegotiation framework.

"If there is a clause about renegotiation, then we should go about it. If there is not, we would only lose in the arbitration," Fauzi said. "Forcibly terminating the contract would hurt the investment climate here."

Kurtubi, an economist at University of Indonesia and director of the Center for Petroleum and Energy Economic Studies, said he supported the plan to overhaul energy deals.

"I appreciate what the president said about contract renegotiation, but it's too late. He should have said that a few years ago. We have already suffered many losses, but renegotiation could offset the losses," he said.

Yudhoyono said the renegotiations should provide a "win-win solution" and benefit the country's Master Plan for the Acceleration and Expansion of Indonesia's Economic Development (MP3EI).

The government, which already has two major deals in its sights, is looking at several energy contracts in a bid to increase state revenues, create more jobs and give added value to the country's natural resources, Agus said.

One high-profile contract the government would like to wrap up is with gold miner Newmont Nusa Tenggara, which paid Rp 5.8 trillion ($678.6 million) in taxes and royalties last year. Under its 1986 working contract, US mining giant Newmont must divest 51 percent of its stake in NNT to Indonesian entities. The government and lawmakers are at odds over the fate of the final 7 percent, with the House of Representatives blocking government attempts to buy the shares earlier this week.

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