Uncertainties continue to overshadow mining industry<\/p>\n
Sudibyo M. Wiradji and Hendarsyah Tarmizi, The Jakarta Post,
\nJakarta<\/p>\n
The surprise move by Rio Tinto and BP Plc to sell their entire
\nstake in the country's second largest coal producer, PT Kaltim
\nPrima Coal (KPC), to local company PT Bumi Resources might look
\nlike a normal business decision.<\/p>\n
But for those who closely watch the country's mining sector,
\nthe decision was a clear indication of their frustration in
\ndealing with the uncertainty in the country's mining policy.<\/p>\n
The Indonesian Mining Association (IMA) has warned that more
\nforeign companies might follow suit if improvements are not made
\nin the investment climate in the country's mining sector.<\/p>\n
\"It has become a growing trend now among foreign mining
\ncompanies to sell their mining interests in Indonesia. They
\nsimply have no confidence in the country's mining policy,\" the
\nassociation's executive director, P.L. Coutrier, told The Jakarta
\nPost recently.<\/p>\n
Bumi Resources' acquisition of KPC surprised the country's
\nmining community not only because the deal was made when the coal
\nproducer's shareholders were still in the process of completing
\ntheir mandatory divestment program, but also because of the
\nrelatively low price of the deal.<\/p>\n
For Rio Tinto and BP Plc, the sale of their stake in KPC ended
\nyears of uncertainty regarding their mandatory divestment. Being
\nwholly owned by foreign investors, 51 percent of KPC was required
\nto be divested to local investors after 10 years of the company's
\noperation. But it was not easy to meet this divestment
\nrequirement, which became effective in 2001. Besides the fact
\nthat Rio Tinto and BP had to rely on companies appointed by the
\ngovernment to buy the stake, differences in price also become a
\nmajor hurdle.<\/p>\n
The government last year named the East Kalimantan provincial
\ngovernment as the buyer of a 31 percent stake in KPC and state-
\nowned coal producer PT Batubara Bukit Asam as the buyer of the
\nother 20 percent stake, in a move it hoped would settle the long-
\ndelayed KPC divestment.<\/p>\n
But a difference of opinion over the value of the stakes and a
\nlack of say by Rio Tinto and BP in determining the buyers slowed
\nthe KPC divestment.<\/p>\n
KPC has often been blamed as the main source of the delay. The
\nEast Kalimantan provincial government, for example, several times
\ntook the KPC shareholders to court for failing to implement the
\nmandatory divestment program.<\/p>\n
Besides taking KPC to court, the administration also
\nthreatened to close down KPC's operations for failing to meet the
\nlocal people's \"aspirations\".<\/p>\n
Threats by the local government and local legislators to
\nmobilize the people to blockade the company's operations became
\neveryday problems the KPC shareholders had to deal with.<\/p>\n
Observers believe such threats and distrust from the local
\ngovernment prompted the KPC shareholders to sell their entire
\nstake to Bumi Resources at a relatively low price.<\/p>\n
Bumi Resources will buy a 100 percent stake in KPC for US$500
\nmillion under the deal, which will be completed later this year.
\nThe amount is almost equal to the US$419 million price tag
\noffered for the 51 stake that was to be sold to the local
\ngovernment and PT BA under the mandatory divestment program.<\/p>\n
\"KPC shareholders instead sold its entire stake to Bumi
\nResources because they might have felt that it would not be
\nfeasible to continue doing business in such a situation,\" one
\nobserver said.<\/p>\n
The Indonesian Mining Association describes the problems
\nexperienced by KPC as only the tip of the iceberg.<\/p>\n
The association's executive director, Coutrier, listed at
\nleast four major factors that discouraged existing mining
\ncompanies and potential investors from investing in the country's
\nmining sector. These include uncertainty in mining policy, high
\ntaxes, a lack of security guarantees and legal inconsistency as a
\nresult of regional autonomy.<\/p>\n
At least 22 companies have become the victims of legal
\nuncertainty. These companies secured contracts to operate mines
\nin eastern Indonesia in the early 1990s, but were forced to
\nsuspend their operations because parts of their concession areas
\nwere located in protected forests.<\/p>\n
According to the new forestry law issued in 1999, open-pit
\nmining in protected forests is prohibited. But Coutrier said that
\nenforcing the new law in relation to the 22 companies was unfair
\nbecause they obtained operation permits before the law was
\nissued.<\/p>\n
The government is seeking the approval of the House of
\nRepresentatives to allow the 22 companies to resume their
\noperations. This plan is strongly opposed by local green
\nactivists, who say allowing the operations would damage
\nconservation areas and harm biodiversity.<\/p>\n
Besides uncertainty in mining regulations, the government's
\nfiscal policy is also considered one of the factors impeding
\nmining operations. In addition to income tax, valued added tax,
\nsales tax, dividends and royalties, mining companies also have to
\npay a series of levies imposed by local governments.<\/p>\n
\"In total, a mining company has to pay 60 percent of their
\nearnings to the government. This amount is the highest in the
\nworld,\" Coutrier said.<\/p>\n
Another factor is a lack of security guarantees. Illegal
\nminers often face no barriers and can easily operate within a
\nconcession area owned by a mining company due to a lack of legal
\nenforcement.<\/p>\n
\"Illegal mining activities continue to grow, jeopardizing the
\noperation of already licensed mine operators,\" he said, adding
\nthat the lack of security also made mining operations easy
\ntargets for demonstrations, which often resulting in damage to
\nthe mining companies' property.<\/p>\n
The other serious problem hampering mining investment is
\nrelated to overlapping and inconsistent regulations as the result
\nof regional autonomy. Mining companies often face difficulty
\ndetermining which rules they have to follow due to these
\ninconsistencies.<\/p>\n
The poor investment climate has resulted in a lack of fresh
\ninvestment in the country's mining sector over the last 10 years.
\nThis is very different from the early 1970s and 1980s, when
\nIndonesia was considered a haven for mining operations.<\/p>\n
\"The worsening of the investment climate in the country's
\nmining sector has resulted in the halt of mine explorations. No
\nexplorations have taken place during the past four years,\"
\nCoutrier said.<\/p>\n
According to the association, Indonesia's position in the
\nworld's mining industry has continued to decline due to the
\nworsening of the investment climate. Indonesia was ranked 27th
\nout of 35 countries surveyed in 2001-2002 in terms of the
\n\"attractiveness\" of their mining sectors.<\/p>\n
Richard B. Ness, the president of the Indonesian subsidiary of
\nthe United States-based Newmont Corporation, PT Newmont Pacific
\nNusantara, said Indonesia received less than 1 percent of the
\nworld's mining investment in grassroots exploration, despite the
\nhigh geological potential offered by the country.<\/p>\n
\"This to me indicates that the policies that govern mining are
\nnot yet aligned to attract investors,\" he said.<\/p>\n
He said many countries had updated their mining regulations
\nover the past 20 years to enable them to compete for new
\ninvestments.<\/p>\n
Most mining companies operating in Indonesia today discovered
\ntheir deposits in the 1970s and 1980s. Exploration activities
\nhave continued to decline throughout the 1990s due to a lack of
\ncompetitive policies.<\/p>\n
\"This will undoubtedly result in a substantial decline in gold
\nand other mineral production within the next decade,\" Ness said,
\nadding that the fact that some companies such as PT Kelian
\nEquatorial Mining and PT Newmont Minahasa were closing their gold
\nmining operations would contribute to the drop in the nation's
\nfuture production.<\/p>\n
Ness said high taxes, legal uncertainties such as those
\nrelated to the change in the status of forests, and legal
\ninconsistency related to regional autonomy were contributing to
\nthe decline in new investments.<\/p>\n
\"It is therefore important for related government agencies,
\nthe mining community and other stakeholders to continue to work
\ntogether to seek solutions to improve the investment condition,\"
\nhe said.<\/p>\n
He said improving the investment climate was not only related
\nto tax rates, but also to how Indonesia can create a globally
\ncompetitive environment and regulatory framework in which mining
\nand other businesses can thrive.<\/p>\n
Mining operations should not merely be seen as tools to
\nincrease state revenue, but also as agents for development and
\ngrowth, he said, adding that many mining companies in many
\ncountries had successfully turned rural areas into centers of
\nbusiness growth and enhanced the welfare of the people in the
\nsurrounding areas.<\/p>\n
Ness acknowledges that it would not be easy for Indonesia to
\naccommodate all of the needs of investors and society.<\/p>\n
\"But at least we can hope that the new general mining law
\nwhich will be soon be submitted by the government to the House of
\nRepresentatives for approval will be able to turn Indonesia into
\na better place for mining operations, for the nation as a whole.\"<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/uncertainties-continue-to-overshadow-mining-industry-1447893297",
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"sponsor": "Okusi Associates",
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