Ending the mining imbroglio

Ending the mining imbroglio

The government has decided to end once and for all the
imbroglio that had virtually stopped new investment in the mining
sector since early 2002 and threatened to plunge Indonesia into
messy international litigation with billions of dollars in
potential losses.

President Megawati Soekarnoputri signed last week a regulation
in lieu of law that amended Law No. 41/1999 on forestry, thereby
allowing companies, mostly foreign investors that had obtained
their mining contracts before 1999, to engage in open-pit mining
in protected forests.

The amendment simply boiled down to the insertion of
transitional clauses to Law No. 41/1999 that stipulate that
companies that obtained their mining contracts before 1999 will
be allowed to continue open-pit mining in protected forests until
the end of their concessions.

The amendment simply corrected a mistake the government and
the House of Representatives made in the enactment of the law.
The transitional clauses should have been stipulated in Law No.41
because the law introduced completely new policies.

Transitional clauses are normal provision in laws that
introduce new rules or policies and declared null and void what
had previously been legally allowed.

Law No. 41 only stipulates that open-pit mining is prohibited
in areas designated as protected forests, national parks and
conservation areas, but does not mention the legal status of 150
mining contracts the government had awarded before 1999 for open-
pit mining in protected forests.

The law obviously caused a great deal of controversy and legal
uncertainty because the ministry of forestry insisted on
enforcing the law, even though many of the 150 mining contractors
had invested hundreds of millions in their concessions and
unilaterally annulling their contracts would plunge the
government into expensive lawsuits that would put the government
at risk of having to pay billions of dollars in damages.
Unilaterally revoking the concessions also would cause legal
uncertainty in the mining industry.

The government has a valid point in its argument that the
sanctity of a contract should be honored, otherwise our economy
would be in total chaos and the country, which is so desperate
for new investment, would become a pariah among investors. And
mining is one of the most promising resource-based businesses in
the country, especially in the less developed eastern region, and
has multiple benefits for the whole economy and consequently the
people.

Moreover, mining companies are usually more careful about
their management of the forest and the environment because of the
long-term nature of their investment and operations. In fact, it
is illegal miners and illegal loggers that have always been the
biggest threats to our forest resources.

However, allowing all the mining concessionaires to continue
their open-pit operations would cause devastating damages to
Indonesia's forests and biodiversity.

The regulation in lieu of law that was issued after the
Cabinet session last Thursday seemed to be a compromise solution
to the dilemma without exposing our protected forests to too big
a risk of severe damages.

That is because the regulation is not simply a blank check for
foreign investors to go on a rampage in the country's protected
forests. First of all, only 13 out of the 150 mining contracts
affected by Law No. 41/1999 will be allowed to resume open-pit
mining.

These companies were selected by a special team from the
government and the House on the basis of tough criteria. Foremost
among the conditions was that the companies had found commercial
volumes of mineral deposits and had invested a great deal of
money in their concessions, and that their mining ventures would
contribute greatly to the national economy.

Nevertheless, it goes without saying that the 13 mining
companies should be subject to stringent supervision. Their
mining operations should be based on annual extraction plans that
have been approved jointly by the ministries of mines and
forestry to ensure they fully implement good environmental
management in their concession areas.

In this context we are also encouraged to learn that the
government is about to issue another regulation in lieu of law
that will introduce stronger measures to fight illegal logging.

The international community, we believe, will support the
government's decision to annul the other 137 mining contracts
because the global community, after all, also benefits from the
biodiversity and climate-regulating role of our tropical forests.