Tue, 13 Jan 2009
From: The Jakarta Globe
By Mita Valina Liem
The new mining bill approved by the House of Representatives, or DPR, on Dec. 16, has drawn strong reactions from industry players, who argue that the new bill, which substitutes the old contract of work system with a new permits scheme, could scare off investments in the sector.

In late December, the Jakarta Globe invited six executives from the mining and energy industries to a round-table meeting to discuss the possible impact of the new mining law on investment.

William Deertz, an energy advisor for PricewaterhouseCoopers LLP, said he believed the mining industry probably would prefer the old system to a more complicated one where miners had to apply to for a series of permits.

“In developing countries like Indonesia, a contract system is much more preferable than a licensing system because it is inherently simpler,” Deertz told the meeting.

Licensing worked better in developed countries where bureaucracy is more streamlined and projects are not held up by rent seeking, he said.

Singgih Widigdo, natural resources director at the Indonesian Coal Society, said the new law seemed to reflect political, rather than industry, concerns.

“The new mining law was supposed to take into account government concerns about resource and energy security, as it was supposed to clarify the use of state reserve areas and regulate the use of profit-sharing clauses between miners and local governments in the areas miners operate,” Wididgo said. “Nevertheless, reading through the articles, I came to the conclusion that when the legislators created this law, they gave in to political pressure.”

'We need to educate the regional governments and make the central government a part of this process.'

Omar S. Anwar, Rio Tinto

According to Widigdo, the new law, with its limitations on land use, was meant to encourage the growth of smaller, local investors at the expense of big international players.

Priyo Pribadi Soemarno, executive director of the Indonesian Mining Association, agreed.

“This new law just protects medium and small investors; it’s not for the big investors. Big investors need more guarantees and long-term security, and the new law gives us just 20 years [to exploit areas before extensions can be applied]. This time is simply not sufficient.”

However, Omar S. Anwar, Rio Tinto’s president director for Indonesia, was more circumspect about the law. He said he believed the industry should be willing to accept the new law as written and instead work to improve the implementing regulations being worked out by the Ministry of Mining and Energy Resources this year.

“Whether we like it or not the mining law has been passed by a majority vote by legislators,” he said.

One bright spot in the new law, Omar noted, was its attempt to account for the interests of all mining stakeholders, including local governments and communities. This, he said, was one way in which the new law was superior - at least in theory - to the old one.

While the new law gave more authority to local governments, round-table participants agreed that the central government needed to provide training for regional officials to ensure that they did not issue mining permits to local investors that overlapped with concessions belonging to larger miners.

Participants also noted that miners faced harassment from regional governments that were levying additional fees and taxes that miners had not agreed to in their contracts with the central government. These same problems could continue under the new mining law, they said.

“We need to educate the regional governments and make the central government a part of this process,” Omar said. “We must take into account all the interests of the stakeholders in the community, plus the central government, to move forward and make sustainable projects. Having a local government stake in the project is key - it’s actually an advantage.”

Hendra Sinadia, legal counsel at the Indonesian Mining Association, said that the old contract of work system had made regional governments feel left out. “The [centralized system] created a misapprehension in the [regions] that the revenues from coal were monopolized by the central government,” Hendra said.

Whatever the concerns about the new law, Hendra said the key would be ensuring that its implementing regulations were appropriate.

Sugihono Karisman, vice president of the International Chamber of Commerce, agreed. “The key is not what the law looks like now, but how reliable it ends up looking and what guarantees for miners it has.”



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