Autonomy holds bumpy ride for mining industry

Autonomy holds bumpy ride for mining industry

By Berni K. Moestafa

JAKARTA (JP): In early November, members of the South Sulawesi
Legislative Council demanded the central government pay some Rp 6
billion (nearly US$900,000), saying the money was outstanding in
royalties from a massive local nickel mining operation.

The royalties in question were derived from PT International
Nickel Indonesia. Tbk (Inco), a Canadian company listed on the
Jakarta Stock Exchange, which operates the Soroako mines.

By law, 80 percent of royalties paid by Inco to the Indonesian
government should be paid to the local administration.

The legislators said Jakarta had always been slow in
disbursing the province's entitlement.

South Sulawesi is not the only province critical of Jakarta's
inability to promptly pay royalty payments. Throughout Indonesia,
local administrations have been grumbling about the drawn-out
procedures for obtaining their share of royalty payments.

Many resource-rich provinces have, over the past year, balked
at the manner in which Jakarta has delayed paying their royalty
shares. They claim the central government has also been helping
itself to disproportionally larger shares of the royalty payments
for minerals extracted from their regions.

In spite of their massive contribution to the central
administration, the economy of these provinces remains
underdeveloped.

Irian Jaya, which produces copper and gold, South Sulawesi,
which produces nickel and South Kalimantan and East Kalimantan
with their coal deposits, are far less developed compared to
Java, where most of the mining royalty money is spent.

Regional discontent and resentment came into the open with the
dawn of political reforms and democracy in Indonesia.

It was partly in response to this outcry that the House of
Representative passed in April Law No. 22/1999 on Regional
Administration and Law No. 25/1999 on Intergovernmental Fiscal
Balance.

The two legislations give the regions greater autonomy in
managing their own affairs and a greater share of the revenues
that are generated in their areas.

The regions, as well as all parties concerned, have two years
to prepare for the new laws before they are fully enforced.

Under the intergovernmental fiscal balance law, provinces will
get 15 percent of the government's oil revenue, 30 percent of gas
receipts and 80 percent of mining royalties.

This allocation could be a big boon for the resource-rich
provinces in Sumatra, Kalimantan, Sulawesi and Irian Jaya.

There are currently 32 major mining companies operating
throughout the archipelago, extracting coal, nickel, gold, copper
and other minerals. The mining industry generated some $4 billion
in domestic and export sales in 1998.

Their total contribution to government coffers amounted last
year to about $540 million.

Armed with the newfound autonomy, some provincial
administrations have began moves to try to skim even more money
from mining companies extracting minerals from their provinces.

The chairman of the Board of Advisors at the Indonesian Coal
Mining Association, Soetaryo Sigit, said many local
administrations saw the autonomy law as a "weapon" to boost local
revenues.

Soetaryo said however, that the targeting of the mining
companies was wrong, and that they should keep their focus on the
central government.

"They assume that just because the money from Jakarta never
arrives on time, they must now turn to the companies," he said.

He cited as an example a regulation passed by the South
Kalimantan Legislative Council imposing a yearly Rp 55,000 fee
for each hectare mined by companies.

He said because mining companies operated over thousands of
hectares, they would end up paying hundreds of million in rupiah
for land usage alone.

Future problems

He also foresaw problems with mining companies working under
two different tax regimes, because the concessions would run over
two regencies.

"Implementing the autonomy law doesn't seem to be that easy,"
said Soetaryo, who is also a commissioner with PT Adaro
Indonesia, which has a coal mining operation in South Kalimantan.

Soetaryo said local people often regarded mining companies as
colonizers depriving them of their natural resources.

He said that because locals were unaware about mining
contributions to the regions, they did not know the benefit of
the presence of these companies.

Soetaryo, who is a former director general of general mines at
the Ministry of Mines and Energy, faulted the central government
for failing to involve local administrations in drafting the
contracts with investors.

Even the governors are still blind to the contracts," he said.

He said all royalty payments were currently paid to the
central government, which then disbursed a share to the provinces
in a process that could take at least six months.

"Royalties should be directly paid to the regions."

He said the government should explain the content of mining
contracts to regional administrations before permitting them to
issue mining regulations.

The chairman of South Kalimantan's provincial development
board, Ismet Ahmad, said regency administrations had been under
pressure to regulate mining companies in their areas in order to
win autonomous status before the law comes into effect in two
years time.

Under Article 6 of the Regional Administration Law, regional
administrations that are not prepared to become autonomous when
the law comes into force will be dissolved or merged.

Ismet said the clause was forcing many regencies or
mayoralties to issue regulations to quickly generate increased
revenues.

He warned that some regencies and mayoralties might not meet
the criteria to become autonomous status. The criteria includes
the ability to manage their own affairs and a certain degree of
financial independence.

"That's why many are turning to mining companies to collect
funds," said Ismet, a PhD holder in economic development from the
University of Florida.

He suggested that local administrations turn their attention
to the agriculture or the manufacturing sectors, which offer
longer term benefits compared to the mining sector.

The chairman of the Association of Indonesian Mining
Professionals, Herman Afif Kusumo, said that with the greater
autonomy for the regions, the Ministry of Mines and Energy in
Jakarta had become dispensable.

"The central government would coordinate the mining industry,
but on the fields it would be managed by regional
administrations," Herman said.

The success of the transfer of authority from the center to
the regions would largely depend on Jakarta's "sincerity", he
said, adding that most ministry officials would probably be
reluctant to be reassigned to the regions.

Herman also cautioned the need to thoroughly prepare officials
in the regions in handling their new responsibility.

"We have to guide the regional administrations so that they
don't mess it up."

He said local officials were not used to handling the
opportunities and the authorities given to them under the new
autonomy law.

Herman said the provinces should not hesitate to recruit
mining experts from abroad if they could not find them locally,
adding that the two-year preparation period was insufficient
because the regions lacked qualified human resources.

He said decentralization benefited mining companies because it
would simplify the investment process and open up opportunities
to foster better relations with the locals.

PT Adaro general affairs manager Eddy Suwikno said the
prestige of a mining company would be defined by how well it
conducted its community development programs.

He said as close neighbors, mining companies should listen to
the needs of the locals.

The spokesman for the giant gold and copper mining company PT
Freeport in Irian Jaya, Siddharta Moersjid, said companies
must maintain constant communication networks with local people.

He said that in implementing the autonomy law, it would be
difficult to please all the different parties, from the local
inhabitants to the central and local administrations.

The tediousness of the slow-moving shift from the decade-long
centralization to decentralization is to be expected.

In Ismet's words: "of course there'll be bumps in the road --
we're moving from one state of balance into another. What counts
is how we get to the new state of balance with a minimum of
suffering."