Fri, 11 Apr 2008
From: The Jakarta Post
By Andi Haswidi, The Jakarta Post, Singapore
A panel of speakers at the fourth Asian Mining Congress in Singapore said Indonesia was still perceived as high-risk to current and potential industry investors.

There were three main points of concern raised during the discussion. The first was the negative impacts of decentralization, which has caused an overlapping of authority with the central government and the local government.

Discussed second was the amendment process of mining law, which started in early 2005. Finally, unclear forestry regulation, particularly on the division of production and protected land, was raised.

"A consequence of the new mining laws essentially is the current working contract arrangement will be replaced by a new permit system," said Gavin MacLaren, a managing partner at the law firm Allens Arthur Robinson.

According to the mining bill, the new permit will give investors a maximum operations tenure of 20 years, which is 10 years less than the period offered under the working contract mechanism.

The bill also says all mining companies must develop minerals locally, making smelters necessary capital. It also stipulates if permit holders violate certain rules, the government has the right to revoke their permit, which is not regulated under the current working contract arrangement.

"It would be fair to say the upcoming law provides less security and stability," MacLaren said.

He also said it was not clear whether the existing working contracts would "grandfather" the new permit system, mood and approach, adding the entire industry would depend on that decision.

He warned if the House endorsed the bill as planned this year, it might take a considerable period of time to implement the new system and for the industry to become comfortable with the changes, resulting in delayed operations and developments.

A speaker from the World Bank's International Finance Corporation (IFC), Karsten Fuelster, confirmed it was likely the lack of investor confidence in Indonesia would continue.

His opinion is also reflected in the government's forecast on new investments in the mining sector, which is expected to grow only by 2.5 percent this year to US$1.35 billion, predicting investors were likely to place their plans on hold until the new law comes out.

As most developing countries, including Indonesia, had shares in the IFC, Fuelster said the IFC could easily access the government and advise investors prior to making decisions.

He said the main goal of the IFC was to promote development through private investment in developing nations, so such advice benefited both the investors and the country in need of investment.

To support such an endeavor, the World Bank also provides insurance to cover liabilities over risks through the Multilateral Investment Guarantee Agency (MIGA).

MIGA's acting global head for oil, gas, mining and chemical sectors, Mamadou Barry, said about 90 percent of respondents surveyed attributed investing concerns to political instability in developing countries, such as Indonesia,

Risks facing investors in developing countries, he said, included nationalization, confiscation, discriminatory government action and breach of contract.

"The trend of decentralization has also created potential distress as it demands a greater share of company revenue," Barry said.

Following the Asian financial crisis, he said, MIGA had to pay $15 million to a client due to the cancellation of its investment plans in Indonesian electricity plants. The plans fell through due to government financial constraints.

He said MIGA did not only covers losses. "As part of the World Bank Group, we give a deterrent to harmful government actions and are able to mediate disputes."



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