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.