Jakarta (ANTARA News) - Indonesia is failing to cash in on a global surge in mineral prices, with the country's confusing business environment turning off major new investment, analysts say.
Indonesia has massive reserves of minerals such as copper, tin and bauxite, all of which have seen dramatic price rises throughout the year, largely driven by demand from China and India.
But business reluctance to muddle through an uncertain regulatory environment is leaving the country's mineral sector behind, said Sacha Winzenreid, a mining partner at Pricewaterhouse Coopers (PwC).
"While the industry in Indonesia continues to be very profitable, new investment is needed to sustain it into the long term," Winzenreid told AFP.
"Global mining companies still rate Indonesia's investment conditions relatively poorly, and as such Indonesia is lagging behind some less geologically prospective countries in attracting investment dollars."
Despite billions of dollars worth of minerals nestled underground, the 2006 annual report from the Indonesian Mining Association and PwC shows Indonesia received only two percent of worldwide exploration spending in 2005 -- and the situation has not improved, Winzenreid said.
Increasingly dense layers of giovernment
Key factors deterring major foreign investment, analysts said, include the murkiness created by a devolution of power to previously weak regional governments, and a protracted debate over a new national mining law.
Indonesian provinces have been gaining greater freedom to run their own affairs in the wake of the 1998 overthrow of former dictator Suharto, whose 32-year rule concentrated power in the capital Jakarta.
Regional autonomy means companies now deal with increasingly dense layers of government and contradictory regulations as well as overlapping claims, Winzenreid said.
Decentralisation has also led to a proliferation of smaller, often illegal, mining operations in local regions, said Priyo Pribadi, the executive director of the Indonesian Mining Association.
"A lot of the local companies that developed after the regional autonomy (laws were passed) do not really make income for the government," he told AFP.
Royalties and taxes that previously flowed to Jakarta are now staying in the regions -- and often ending up in the pockets of local officials, he said. (*)