Opportunities, challenges in mining investment<\/p>\n
The following is based on the address of Noke Kiroyan, vice
\nchairman of the Indonesian Mining Association, at the Indonesian
\nInvestment Summit on Mining and Energy, held in Jakarta on July
\n12. Kiroyan, the president director of Rio Tinto Indonesia, also
\nchairs the Indonesia-Australia Business Council.<\/p>\n
JAKARTA: As members of the mining industry -- one of the most
\nsuccessful revenue-generating national industries -- we are in a
\nposition of being able to contribute significantly to Indonesia's
\nfuture.<\/p>\n
All of us, Indonesian citizens, have clamored for change in
\nthe last two years and we have achieved this. But we must also
\nrecognize that change is a process that requires a spirit of
\ncooperation.<\/p>\n
There is a parallel between the tasks lying ahead for the
\nIndonesian government and our mining industry. The government is
\nworking to draw on the wealth of our nation and reveal its
\npotential to investors.<\/p>\n
In much the same way, it is the nature of our industry to
\nuncover and tap the wealth inherent in the earth. We all know the
\nminerals are there -- there is no problem geologically. Our task
\nis therefore clear-cut; to raise the potential of the mining
\nindustry in the eyes of foreign investors.<\/p>\n
To accomplish this, we must relinquish our total and
\nunmitigated dependency on the previous terms of the industry's
\nMining Law and Contract of Work, and actively grasp the
\nopportunity presented by their absence. \"It ain't broke so why
\nfix it\" is an attitude that obscures the view to this beckoning
\nopportunity.<\/p>\n
We have the chance to contribute to the new regulations and
\nguidelines and herald the shifting paradigm of our industry. The
\nsuccess of the mining sector will work toward securing the trust
\nand loyalty of investors and thus, ultimately contributing to the
\ncountry's future.<\/p>\n
First and foremost in this task is to invest in ourselves and
\nlearn to trust the ongoing progress and reform. After all, we
\ncannot expect others to believe in the steadfast progress of our
\nnation's reform if we don't put faith in it ourselves.<\/p>\n
Second, we also need to undergo introspection. This applies to
\nIndonesians like myself, who are fiercely loyal to the
\ninternational companies we belong to, but also fiercely
\nIndonesian, and also our partners from other countries, who are
\nhere to help develop the nation's riches.<\/p>\n
The time has come to be more flexible, to allow the smaller
\nvoices to be heard, to be more democratic and to be more fair. We
\ncan do this in a mature fashion, embracing change and allowing
\nourselves to be seen as an industry that shows the way for other
\nsectors. Or, we can be seen as fighting tooth and nail,
\nsquabbling over every tiny concession we have to give up. The
\nchoice is ours.<\/p>\n
The way we approach this change will have ramifications on how
\nwe are perceived by the world at large. Foreign investors already
\nface many challenges in Indonesia.<\/p>\n
There is a gap that at times seems insurmountable between our
\npolitical and legal practices with those of our investors'
\nnations. Our business cultures are frequently at odds with each
\nother, even without the damaging practice of corruption,
\ncollusion and nepotism. It would obviously help to move closer to
\nthe mainstream of international business practice.<\/p>\n
It also goes without saying that the current political,
\neconomic and social situation renders an even higher risk, and
\ntherefore results in a highly unattractive, investment zone.<\/p>\n
Compounding this outlook is the ongoing efforts at reform, in
\nwhich we expect our potential investors to believe that the
\nnation is changing and becoming more democratic.<\/p>\n
Yet, viewed from a distance all we do at home is fan the
\nflames of trouble and strife, breaking up into factions and
\ncriticizing every move the government makes. Foreign investment
\nhas become a mantra in the political, economic or business
\nsectors, and yet, we have done little to show that we can deliver
\nour end of the deal.<\/p>\n
I am not advocating massive and immediate change. In our
\nefforts to do well, we must not throw out the baby with the bath
\nwater. The government must realize that too much, too soon a
\nchange in the mining sector is not conducive to certainty and
\ncommitment. This may well produce a round of applause at the
\nannouncement of the play, but it does no good if the actors
\nrefuse to come on stage.<\/p>\n
Managed change is required. We must and will become more open
\nto voices from the regions and communities asking for a fair
\nshare. However, it must be balanced with acceptance by the
\nauthorities that the more extreme among the voices heard are
\nasking for the outright, absurd, wide-sweeping populist demands
\nignoring economic principles, get-rich-quick schemes and in some
\ncases, plain greedy opportunism.<\/p>\n
Voices like these must not be pandered to, for acquiescence
\nwould be the signal to investors to give Indonesia wide berth.<\/p>\n
It is therefore easily understandable to be apprehensive --
\neven suspicious -- of change and an unknown future. The mining
\nindustry finds itself in uncharted territory once again after 30
\nyears of a favorable, if lackluster, working environment, and we
\nare now full of trepidation.<\/p>\n
In this new ball game we are young and inexperienced players
\nand yet because of this, we have the advantage of generating a
\ntruly innovative and unique course for the industry.<\/p>\n
A major part of the insecurity may be prompted by the absence
\nof a new Contract of Work and a new Mining Law, whereas the
\ncurrent one is for all practical intents and purposes no longer
\nexistent.<\/p>\n
Other additional challenges include the emergence of regional
\nautonomy, the implementation of new regulations and policies in
\nvarious spheres, and renewed expectations and demands from our
\ngovernment. In this, we may sense a lack of control.<\/p>\n
But this is an opportunity for us to embrace. By redefining
\nour role and proactively helping shape this shifting paradigm, we
\ncan assume control of our destiny. We can fashion our future.<\/p>\n
We are in many instances moving in the right direction.
\nAlready, we have begun to implement international standards of
\ngood corporate governance and are becoming better at regional and
\ncommunity development efforts, including the protection of human
\nrights.<\/p>\n
In so many ways, the reorientation toward the communities
\nmakes sound business sense. The chief economist at Rio Tinto
\nLondon, David Humphreys, recently wrote a paper on business needs
\nand community values and how the two not only interrelate but
\nalso have the ability to work in synergy, providing better
\nresults for all involved.<\/p>\n
He believes that the improvement in recent years in regards to
\nthe industry's approach to community relations has come about due
\nto two reasons: one, because simply the industry had little
\nchoice, and two because the benefits to be gained from good
\ncommunity relations directly affected the bottom line for all in
\nthe mining industry.<\/p>\n
Humphrey cites the loss of value through project delay to
\ndemonstrate what he means. Consider for example a US$600 million
\nmine project with a net present value (NPV) of $76 million which
\nis planned to come onstream in eight years, five for proving and
\nfeasibility and three for development.<\/p>\n
Delays of five years at the proving stage and two years at the
\ndevelopment stage -- by no means an extreme example -- could
\nreduce the project NPV to $26 million. A mining company working
\nin a community that trusts it will benefit so much in the smooth
\nday-to-day running of the operation.<\/p>\n
So this changing paradigm is evident everywhere. From 1967 to
\n1997, the working system of our industry was supported by the
\npolitical system, at least that is what some fellow citizens
\nbelieve. Now that the government has changed, there needs to be
\ncomplementary amendments to our working system.<\/p>\n
The new government is feeling its way forward to establish a
\ntrue democratic system, implementing changes and improvements
\nacross the board -- in politics, law, business, the economy and
\nsociety at large. The government has its hands full.<\/p>\n
We can help by putting our faith in our leaders and letting
\nthem lead, while we, as experienced industry players, must apply
\nour know-how toward regulating and changing our industry and
\ninitiating our own terms of a working contract. The time is ripe
\nfor us to take our place as active participants in this period of
\nreform.<\/p>\n
As a sector that has benefited so much from the past 30 years,
\nit is not only our responsibility, but also our duty as the
\ncurrent mining leaders in Indonesia to contribute toward playing
\nour role and bringing change into our industry responsibly,
\nfairly and ethically.<\/p>",
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"sponsor": "Okusi Associates",
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