Confusion reigns over mining laws

By Berni K. Moestafa

JAKARTA (JP): New mining exploration has come to a virtual halt as confusion reigns over the existing mining law that has become outdated with the implementation of regional autonomy this year.

Already some 20 foreign and local mining firms were reported to have stopped or suspended their exploration activities. Chairman of the Indonesian Mining Association (IMA), B.N. Wahju blamed the suspension of exploration on legal uncertainties under regional autonomy.

"The current legal mining framework does not support the autonomy laws," Wahju told The Jakarta Post in an interview last week.

The mining industry has been left with an obsolete mining law since the government implemented regional autonomy on Jan. 1, 2001. The government did issue regulations that govern the mining industry under regional autonomy but they do not comply with the existing mining law.

"The present mining law No 11/1967 is centralistic, while the forthcoming one is based on decentralization," Wahju said.

Because of the inconsistency in the legal system, many banks declined channeling loans to mining firms wishing to invest here.

"The current law is simply not bankable," he explained.

He warned that foreign mining firms could continue to defer their investments here until the government can sort out this legal mess.

Wahju did not specify the companies that have suspended or halted their exploration activities. Earlier, American mining firm PT Newmont Pacific Nusantara was reported to have suspended its activities.

The government is now drafting an amendment of the current law, and it hopes to submit the bill to the House of Representatives this year.

But for now, submission of the mining bill must await the enactment of two other bills, that of oil and gas, and power.

Wahju said that based on an early draft of the mining bill, contracts of work (COW) for foreign companies would be replaced by mining agreements.

Unlike the current COW, which is signed by the President of Indonesia, future mining agreements would be subject only to approval from the local authorities, although the central government would handle the drafting of the contents of the contracts with foreign mining firms.

Sensitive issues in the contract concerning state income, he said, would be handled directly by the central government.

"A regency head then only needs to negotiate affairs that directly affect his regency, such as community development programs," he explained.

Under the autonomy law, regional governments retain 80 percent of mining royalties.

The autonomy laws, Regional Administration Law No22/1999, and the Intergovernmental Balance Law No25/1999, were enacted amid regions' outcries for greater authority in managing their own affairs.

Provinces rich in natural resources demanded a fairer distribution of the revenue generated in their area.

Under the autonomy laws, regions could issue their own mining permits and regulations, and receive a greater share of their mining revenues.

Mining Specialist at consulting firm PricewaterhouseCoopers, Bob Parsons predicted last year, that a "legal limbo" would scare away foreign mining investment already here.

He estimated that spending on exploration activities in Indonesia would drop fast.

Exploration investments have already declined since 1998, from $75 million to $50 million in the year following.

He has said that Indonesia must spend at least $300 million per year on exploration, and discover new resources to sustain the country's production level.

Minister of Energy and Mineral Resources Purnomo Yusgiantoro said the government could do little to prevent the suspension of mining investment here until the new law comes out.

"It's a fact that we'll just have to live with, " he said.

Former director general for general mining at the Ministry of Energy and Mineral Resources Surna Tjahja Djadjadiningrat also admitted that the mining industry was facing a legal gap.

He said a new ruling in preparation for the gradual implementation of mining autonomy rights, is expected to iron out some of the uncertainties.

Under the draft ruling, which will become a presidential decree, regions must undergo preparation before exercising their full mining autonomy rights.

Surna, who is now the head of the ministry's education and training center, said he would lead a task force in charge of preparing the regions.

"We are trying to facilitate the regions' preparations for mining autonomy," Surna explained.

The task force would assist local governments in preparing their human resources, infrastructure and regional laws under the autonomy arrangements, he said.

A forum comprising locals, non-government organizations, government officials, and mining firms would be established to hold regular dialogues, he went on.

"This forum will act as a sort of medium for mining firms, locals and the government to meet, exchange opinions, and resolve issues," he said.

The forum and the task force would then work together to improve regions' skills in managing their mining affairs.

According to Surna, regions have acknowledged their lack of experience in the mining industry, and accepted the need for establishing the task force.

Last year, his office held a road-show to assess regions' readiness in adopting full autonomy.

It said that regions were eager to exercise their mining autonomy rights, but lacked the expertise to do so.

Surna said that although the central government had officially transferred much of its mining authority to regions as of Jan. 1, the implementation is pending the regions' readiness.

Local governments, he went on, could exercise their autonomy rights in stages in accordance with their capabilities.

He said the central government would retain some of the complicated tasks until regions were capable of carrying them out themselves.

"When regions feel they are prepared to exercise their autonomy rights in full, they can declare so to the Ministry of Home Affairs and Regional Autonomy," he said.

The home affairs ministry, with the help from officials of the mineral resources ministry, would then evaluate the region's readiness.

He said that specific criteria were set out to determine a region's capability to fully handle its own mining affairs.

"They (the ministry of home affairs) will decide whether a region is ready or not," Surna explained.

According to him, the home affairs ministry could either recognize the region's declaration of readiness, accept it with conditions, or completely reject it.

But the government, he said, had not decided yet what to do with regions unable to implement their mining autonomy rights.

"Unprepared regencies might have to surrender their rights to provinces, and if the provinces can't do it, the central government might take over," he said.

Under the autonomy law, regions unfit for autonomy face dissolution, or merger with other regions.

Surna said the draft of the ruling was still in discussion within the ministry of home affairs.

"I don't know when they (the ministry of home affairs) will pass it," he said.