Mon, 05 Nov 2007

From: The Jakarta Post

By Ika Krismantari, The Jakarta Post, Jakarta
Indonesia needs to introduce market-friendly regulations in order to encourage more investors to explore the country's rich mineral resources, a senior executive of a major mining company says.

Roberto Castello Branco, a director of one of the world's biggest miners, CVRD Inco, said during a panel discussion Friday that Indonesia should take advantage of soaring global mineral prices by encouraging more investors to tap into the country's natural resources.

However, he stressed that the Indonesian government would need to adopt regulations in the mining sphere that were more investor-friendly if it wanted the world's major players to set up shop here.

"Indonesia has a lot of potential for growth. However, the government needs to understand that what the investors want is certainty," he said. "That's why regulation that is clear and accommodates our interests will be appreciated," Branco said, commenting on the new mining bill, which is currently being deliberated by parliament.

The bill envisages the replacement of the current Contract of Work system for awarding exploration rights to investors with a permit system. The change has drawn protests from mining companies, which say that the new system will lead to a lack of legal certainty for investors.

Under the provisions of the bill, a mining firm will have to apply for mining permits to a number of government institutions, depending on the proposed size of the mine, before being able to commence operations.

If the project is located within one regency, then the mining firm will have to seek a permit from the regent, while if the project straddles more than one regency, the provincial governor will have the right to issue the permit. In a case where the project straddles more than one province, the firm will have to apply to the central government for its permit.

This system, according to the industry, will create uncertainty as firms will have to deal with government at a variety of different levels, including local governments, which are notorious for red tape.

Also speaking during the discussion, Andrew Wilson, a senior executive at BHP Billiton, said it would not be too late for Indonesia to amend the bill in line with the industry's expectations.

He said that besides changing the mechanism for awarding the exploration rights, the government's attempt in the bill to separate the exploration permit from the exploitation permit could pose other problems.

Under the bill, an exploitation permit will only be issued after the company has completed its exploration work.

"We will not invest in things that are not clear. What company will carry out exploration work if it is not clear whether it will finally get an exploitation permit?" Wilson said.

The mining bill, which has been under deliberation for almost two years, is expected to be enacted into law at the end of this year, with only one contentious issue now left to be discussed.

Despite the legal problems, Bronco said that CVRD's subsidiary, PT Inco Indonesia, would continue to expand its nickel mining operation here.

CVRD, which is also the world's second largest nickel miner, owns a 60.8 percent stake in PT Inco, the country's biggest nickel producer.

As part of the company's global investment plan of US$59 billion worldwide over the next five year, Branco said that his company planned to invest about $250 million this year in a number of nickel projects in Sulawesi.

"We are studying the projects to make sure that we won't make mistakes. We will also monitor the government's decision on the new law," said Branco, who was one of the panelists in the discussion.