Conflicts with locals scare off mining investors

JAKARTA (JP): Mining exploration activities in Indonesia continue to drop as foreign firms are discouraged by widespread conflicts between locals and mining companies, analysts said on Tuesday.

Mining analyst at PricewaterhouseCoopers Bob Parsons said this year's expenditure on mining explorations was likely to decline from last year's US$50 million and $75 million in 1998.

He said Indonesia's legal and security uncertainties were taken into account when international mining firms established their annual exploration budgets.

"Multinational companies will defer investments in Indonesia until some of the uncertainties have been sorted out," he told The Jakarta Post following a business forum jointly held by PT Harvest International Indonesia and the state-owned radio broadcasting network Radio Republik Indonesia (RRI).

Minister of Energy and Mineral Resources Purnomo Yusgiantoro was the main speaker at the forum.

Mining firms in Indonesia have had frequent run-ins with local communities or administrations over land, tax, human rights and environmental issues.

PT Newmont Minahasa Raya, which operates a gold mine in Minahasa, North Sulawesi was shut down last week when locals took over its production facilities over a land dispute.

Newmont said it had reopened its mining site on Sunday after police arrested several of the protesting locals.

Parsons said Indonesia must spend at least $300 million per year in exploration to discover new resources to sustain the country's production levels.

According to him, in the next four years, at least three mining firms would shut down because they would have run out of reserves.

"The question is, are there three new mines to replace those three that will be closing down?," he asked.

Globally, he went on, spending on explorations were down because metal prices were down.

A surge in supply with the opening of new mines in Latin America have driven prices down, he said, adding that recovery could be expected in the next two to three years.

He further said uncertainties over Indonesia's future mining regulations had also led to suspensions in a number of mining projects.

"The old contract of work (COW) system is in limbo and everybody is waiting for the new mining law; so we don't have a regulatory framework now," he explained.

But he added that Indonesia's mining potentials remained good.

"Nobody disputes the geological potential of Indonesia," he said.

President of Harvest International, Harvey Goldstein said foreign investors were dismayed by the current violent nature of local communities.

"It's really a question of the empowered masses as they seek restitution for the past thirty years of injustice," he said, referring to the three decades under the authoritarian government of former president Soeharto.

He called for a clear punishment and reward system for the people taking illegal actions against mining companies.

"The minister (Purnomo) has said the law will be upheld, that the law comes first. But there are people in the regions that have taken the law into their own hands," he went on.

He suggested a combination of better community development programs by mining companies and law enforcement to help reduce conflicts.

"It's a problem when people can't get their staff to work, it's a problem when you can't deliver on contracts," he explained.

On hold

Separately, Purnomo said all decisions on contracts for oil and gas extraction and mining in Indonesia would be put on hold next week until the country's regions are officially given autonomy on Jan 1.

"There is a rule that when the government regulation (was) issued ... it said that six months thereafter, which means Nov 6, the central government should not issue strategic decisions," Purnomo told reporters after a meeting with the House of Representatives' Commission VIII, which oversees among others mines and energy affairs.

"I will not take any strategic decision until the regional autonomy is transferred to the regional offices on January 1, 2001."

The minister also said foreign and local mining companies would be invited to help regional governments ready themselves to take over administering contracts.

Existing mining contracts would remain in effect, he said, but he did not rule out demands for changes in some regions.

"The contract is law between two parties, we must respect it, we must keep consistent to hold the contract until the end of the contract ... unless regents want to change ... and that's a different story," he said, without elaborating.

Under new regional autonomy laws, the power to award contracts to oil and mining companies will be transferred from the central government to provinces, regencies and mayoralties. (bkm/tnt)