Instability hampers mining industry<\/p>\n
By Adjat Sudradjat<\/p>\n
BANDUNG (JP): In Indonesia's transition period, the mining
\nindustry has suffered much. This is largely because of
\nuncertainty in the investment climate while the mining industry
\nrequires an intensive amount of capital. Investors seem to be
\nwaiting for things to get better before they start new
\nexplorations.<\/p>\n
Existing mining activities are also experiencing a difficult
\ntime. The interrupted operation of Newmont Minahasa Raya Mines in
\nNorth Sulawesi related to a lawsuit by the local government, the
\nnever ending environmental problems of Freeport in Irian Jaya
\nand, most recently, a strike at the production facility of
\nKalimantan Prima Coal (KPC) in East Kalimantan are examples of
\nthe hard times being faced by mining investors.<\/p>\n
The new policy of autonomy has also created some difficulties,
\nleading to worries about the future of mining operations here.<\/p>\n
Mining in Indonesia is governed by Mining Law No. 11\/1967. It
\nregulates mining licenses for domestic investment and contracts
\nof work (COWs) for foreign investors.<\/p>\n
Under Chapter 10 of the law, the government, following
\nconsultation with the House of Representatives, may invite
\nforeign participation if the government is considered incapable
\nof developing a mining source by itself. This particular
\narrangement between the government and foreign investors, also
\ncalled contractors, is known as a COW. The contract should be
\napproved or given the consent of the House of Representatives.<\/p>\n
The main differences between a mining license and a COW lies
\nin the scope of coverage of the activity. A license is limited to
\na particular phase, such as general surveys, exploration,
\nconstruction, exploitation, transportation or marketing. This
\n\"step by step\" permit allows the government to intensively
\nsupervise or control the miners.<\/p>\n
The COW, on the other hand, covers the whole spectrum of
\nactivities from the very beginning until the marketing stage. A
\nCOW also operates under Foreign Investment Law No. 1\/1967 which
\nprovides facilities for importing materials needed to develop the
\nmines. The area covered in the COW is unlimited, while with
\nmining licenses it is 5,000 hectares at the most.<\/p>\n
The most important clause in the COW is the lex specialis
\nnature of the contract, which provides legal assurances for the
\ninvestor. Given the considerable time needed to develop a mine,
\nwhich in Indonesia is eight to 15 years before production, the
\nassurance is highly appreciated and has become one of the most
\nattractive aspects for investors. The present administration has
\nfrequently expressed their commitment to respect the COW.<\/p>\n
The acute problem of mining activities in many developing
\ncountries is that of illegal mining. In Indonesia, illegal miners
\nhave long been a problem for the government and mining companies.
\nDespite the government's attempts, no adequate remedy has so far
\nbeen found to totally solve the problem. Illegal mining has
\ninstead increased along with the depressing economic situation.<\/p>\n
The most embarrassing situation for mining investors is that
\nthe illegal miners tend to ignore the property rights of
\ncompanies. They also operate with modern and heavy equipment. In
\nthe coal sector in South Kalimantan alone, it is estimated that
\nmore than 2 million tons, or approximately 3 percent, of 70
\nmillion tons of national production has been yielded by illegal
\nmining. Illegal gold mining in West Kalimantan, Irian Jaya, North
\nSulawesi and West Java have long been targets of the government's
\nelimination program. However, with the present situation, the
\nprogram seems to have ceased.<\/p>\n
The other disturbing problem is the land of inhabitants.
\nInsufficient authentic land administration has made it hard for
\ncompanies to settle land compensation. This problem was solved
\namicably in the past but now it has suddenly reoccurred. Kelian
\nEquatorial Mines (KEM), a gold mining company in East Kalimantan,
\nfor instance, temporally stopped operating because of an
\ninterruption by a group of local inhabitants demanding
\n\"additional\" land compensation.<\/p>\n
Slightly different cases have occurred with Indomuro in
\nCentral Kalimantan, and with Vico Oil Company in East Kalimantan.
\nIt was reported also that Caltex Pacific Indonesia (CPI) in Riau,
\nSumatra, experienced a difficult situation. Peaceful settlements
\nhave so far been achieved thanks to the immediate and positive
\nresponses launched by those companies.<\/p>\n
The occupation by a small group of workers at KPC's mining
\nsite in East Kalimantan has forced the company to fail in the
\nfulfillment of its delivery contract. A los of approximately Rp 3
\nbillion of company earnings per day was estimated. The occupation
\nand seizure of production facilities have, up to now, been
\nongoing for almost one month. The occupants have demanded an
\nincrease in wages and serious negotiations are underway with all
\nparties concerned.<\/p>\n
Regarding Freeport, the company has been engaged in all
\npossible ways to control and eliminate environmental damage, but
\ntheir efforts have not satisfied the environmentalists. An ore
\nproduction increase, exceeding 200,000 tons a day from the
\nprevious production level of approximately 160,000 tons a day,
\nhas recently caught the attention of the people. Tailing and
\nwaste materials are the main concerns of the environmentalists.<\/p>\n
Besides, the mining site is close to a permanent tropical ice
\ncap covering the Cartenz Peak. It is very difficult to prove that
\nthe mining activities have never influenced the erosion of the
\nglacier.<\/p>\n
The potential problem anticipated by many mining companies in
\nIndonesia is the forthcoming regional autonomy. The autonomy law
\nstipulates the transfer of various powers to local
\nadministrations and will be in effect by next May. While Mining
\nIndustry Regulation No. 25\/2000 states that all permits shall be
\ntransferred to the local authority, it is not yet clear whether
\nthis means at provincial or regency level. Mining Law No. 11\/1967
\nmust, therefore, be modified in line with the autonomy law.<\/p>\n
Many companies have anticipated another potential problem
\nrelating to legal documents needed for financial arrangements
\nwith international funding agencies. From a financial and legal
\npoint of view, it might be rather difficult for international
\nagencies to recognize documents issued by a local government. The
\nwishes of various local governments to actively participate or to
\nown shares in the companies is another potential problem.<\/p>\n
The economic potential of natural resources is undoubtedly
\nimportant in helping the country to recover from the crisis.
\nMinerals and oil contributed more than 54 percent to the state
\nbudget in the first half of the 1970s; this increased to more
\nthan 67 percent in the next second half, and in the early 1980s.<\/p>\n
Despite decreasing oil reserves, exploitation will be
\nsustainable for another 10 to 15 years, given estimates of the
\npresent level of production of 1.3 millions barrel a day.<\/p>\n
Additional reserves may be revealed should exploration be
\nintensified, similarly with hard minerals, such as gold, copper,
\nnickel, tin and coal. Coal is essential to maintain electricity
\ngeneration, particularly in Java, home to more than 70 percent of
\nthe population and most of the industries.<\/p>\n
Total reserves of mineable coal are estimated at 36 billion to
\n38 billion tons, 40 percent of which is of good enough quality to
\nmeet the requirement of electricity generation. At the present
\nproduction level of 70 million tons of coal a year, reserves are
\npredicted to last for more than 300 years.<\/p>\n
The hard minerals, distributed across 15 mineral belts, extend
\nfrom Aceh to Irian Jaya and less than 30 percent of those belts
\nhave been carefully explored. Geological maps of suitable scale
\ncovering the entire land area of the country have been
\nsuccessfully produced by the Geological Survey of Indonesia, thus
\nproviding the basic information for mineral exploration. Although
\nexploration has to compete with the expansion of industrial and
\nreservation forests, the remaining potential area is still vast.<\/p>\n
The problems outlined above could be summed up in one word:
\nStability. An assurance of security is absolutely needed in the
\ndevelopment of mining.<\/p>\n
President director of Rio Tinto in Indonesia and vice
\npresident of the Indonesian Mining Association Noke Kiroyan
\nbelieves that the present instability and difficult situation
\naffecting the mining industry is just temporary.<\/p>\n
With better governance, peace and stability shall follow, and
\ndawn will be due to break. With long-term vision, important in
\nthe mining industry, the opportunities are there.<\/p>\n
The writer is a professor at the Geology Department of
\nPadjadjaran University in Bandung and a former director general
\nof geology and mineral resources at the Ministry of Mines and
\nEnergy.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/instability-hampers-mining-industry-1447893297",
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