Legal uncertainty remains big problem in RI mining sector

Amahl S. Azwar, The Jakarta Post, Jakarta | Business | Mon, June 17 2013, 12:31 PM

Heavy duty: Large trucks transport coal from the Tutupan mine, one of the mining blocks owned by PT Adaro Indonesia. Indonesia’s mining sector is becoming less attractive for investment due to legal uncertainty and licensing problems. JP/R. Berto WedhatamaHeavy duty: Large trucks transport coal from the Tutupan mine, one of the mining blocks owned by PT Adaro Indonesia. Indonesia’s mining sector is becoming less attractive for investment due to legal uncertainty and licensing problems. JP/R. Berto Wedhatama

“I’m really concerned about the future of the mining sector in this country,” said Rio Ogawa, a former deputy president director with US-based mining giant PT Newmont Nusa Tenggara, in an interview with The Jakarta Post recently.

Ogawa, who has established Jakarta-based mining consultant firm PT Mandakini, was commenting on several surveys on Indonesia’s mining sector last year that, he said, were still relevant to the situation today.

A recently published survey by PricewaterhouseCoopers (PwC) entitled “Mine Indonesia 2013”, which surveyed 20 producing companies and 24 exploration companies operating in the country, revealed that 64 percent of the respondents deemed that Indonesia’s mining industry had become less attractive due to
recent government actions.

The survey, which was endorsed by the Indonesian Mining Association (IMA) and the Indonesian Coal Mining Association (ICMA), said that decentralization was the major annoyance to miners attempting to do business in Indonesia, with most regional administrations out of control in terms of issuing mining permits.

In addition, the 2009 Mining Law, which stipulates a ban on mining firms exporting unprocessed ore from 2014 and requires the firms to build local smelters or to cooperate with smelting companies to process the ore, is also highlighted.

The survey was in line with another survey recently published by Canadian think tank the Fraser Institute, which placed Southeast Asia’s largest economy at the bottom of 96 countries in terms of the policy potential index in 2012.

Overall, from 96 countries examined by the Vancouver-based think tank, Indonesia was ranked 96th in the survey, down from 85th in 2011, 70th out of 79 countries in 2010 and 62nd out of 72 in 2009.

Commenting on this, Ogawa agreed that the “fiasco” had increased after the introduction of the 2009 Mining Law, citing that such surveys could serve as “an alarm clock for the government to wake up and see the reality”.

“The only way is to improve,” he said, adding that it would be useless for a country to have enormous mineral resources but no certainty in its regulations.

Indonesia’s mining sector contributed US$10.6 billion to state revenue in 2012, 21 percent higher than a year earlier.

According to the government’s data, the investment from in the mining sector in 2012 had been increased to $4.2 billion, an increase from the $3.41 billion in 2011.

However, as highlighted in PwC’s report, investors appeared to be more willing to invest in the context of developing existing mines rather than to explore new areas or “greenfields”.

The survey suggested that in 2011, greenfields exploration spending was only covering 3 percent of the total investment in the mining sector.

Ogawa said that at least one medium-sized mining firm had informed him it was expecting the new government after the 2014 election to act more realistically and be business-friendly.

Similarly, Tony Wenas, the general manager of Indonesia’s Intrepid Mines Limited and formerly CEO of publicly listed nickel producer Vale Indonesia, said his only “optimism” nowadays was for the new administration, which would replace the one headed up by President Susilo Bambang Yudhoyono, to do better.

“In 2017, probably the law and regulations were changed five times,” he said.

The Fraser Institute’s Fred McMahon said separately that anxiousness from mining executives was not due to an unfavorable law toward them but merely due to the fact it kept on changing.

“Countries such as Sweden can be in the top 10 most attractive destination for mining companies, even though they implement high taxes. This is due to the fact that they have stability in terms of their rule of law,” he said.

Commenting on this, Deputy Energy and Mineral Resources Minister Susilo Siswoutomo maintained the government would keep on carrying out the implementation of the 2009 law.

When asked whether a new government would alter the law after next year’s election, he only responded with the words: “We’ll see.”


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