new indonesian mining law

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Indonesian lawmakers pass new mining law

17th December 2008, 13:15 WST


Indonesian lawmakers have passed a new mining law that will give the mineral-rich nation greater control over its resources, though analysts warn it could deter investment by multinational corporations.

Indonesia has some of the world’s most abundant reserves of coal, copper, gold, tin and nickel and has lured mining giants like Denver-based Newmont Mining Corporation, Freeport-McMoran Copper & Gold and the Rio Tinto Group - most of whom arrived before the 1998 ouster of long time dictator Suharto.

Critics say deals signed under the notoriously corrupt regime offered contracts to large foreign miners that lasted far too long, some running until 2041.

The new law, approved on Tuesday after three years of squabbling in parliament, will in some cases limit areas of exploration, a move intended to benefit small and medium-sized firms.

It also requires companies to seek separate permits for each phase of mining activity, from seismic surveying and exploration to feasibility studies and construction - reversing the previous system of one-stop contracts.

The law has yet to be signed by the president, a formality that normally takes 30 days.

Newmont executives wanted to study the new law in detail before commenting, spokesman Omar Jabara said in a telephone interview.

Legislator Sonny Keraf said the law “will serve the nation’s best interests” by creating certainty and boosting mining revenues.

But industry experts said it could end up chasing away large-scale investors, putting the future of the industry at stake.

Among other things, it requires investors to process all mining products into metal locally, whether by setting up their own smelters or by using others, something that would sharply increase operating costs.

“How are we going to attract big investors with regulations like this?” asked Priyo Pribadi Soemarno of the Indonesia Mining Association. “It’s a very unfriendly law.”

Newmont has no refinery for Indonesian operations, and Mr Jabara said that issue must be resolved, possibly by contracting a refinery in Indonesia to process its ore.

Jeffrey Mulyono, a chairman of Indonesia’s coal producers’ association, said he expected a sharp decline in investment, which hit $US1.5 billion ($A2.16 billion) last year, up from $US900 million ($A1.29 billion) in 2006.

“This could force some companies to pull out,” he said, adding that dragged-out deliberations over the new law had already created uncertainty among miners, including British-Australia mining giant BHP Billiton Ltd, which abandoned a $US4 billion ($A5.75 billion) investment plan earlier this year.

Under the new law, existing companies operating with a contract of work have one year to comply with the new system. They have five years to begin processing their mining products into metal domestically.