Indonesian mining still lures investors due to good track record

JAKARTA (JP): Though legal and security uncertainties are scaring away mining investors from Indonesia, the country's good track record in developing the industry remains a strong enticement to foreign investors, according to a mining association.

Indonesian Mining Association (IMA) executive Paul Louis Coutrier said on Monday Indonesia remains a favorite mining investment destination, partly due to the success stories of foreign mining companies operating here.

"We can entertain companies like Freeport and Inco for so many years; this is a record difficult to beat," Coutrier said during a press briefing.

He was referring to giant gold and copper producer PT Freeport Indonesia and publicly listed nickel producer PT International Nickel Indonesia (Inco), which have been operating in Indonesia for more than three decades.

To date, Indonesia's tin, copper and coal production ranks among the top three in the world, according to him.

Other countries may offer better tax polices or business climates, but most have yet to prove that these policies can turn investment into long-term profits, he said.

Indonesia, as well as its neighboring countries, has an exploration success ratio of between 1 percent and 2 percent, he said. This means that for every 100 explorations, between one and two will lead to production.

With Indonesia's geological potential relatively the same as other Asian countries, he said, owning a good track record has the advantage of instilling confidence in foreign miners contemplating investing here.

Coutrier added that Indonesia's mining competitiveness was not only judged by the success of its mining sector, but also by the oil and gas sector, which shared some similarities.

"Both sectors have capital incentives and high risks, yet multinational oil and gas companies are also successful here," he said, citing Indonesia's largest oil producer, PT Caltex Pacific Indonesia.

Coutrier said the secret to Indonesia's success stories was the contract of work (CoW), which assures mining operators with legal stability.

"Not all countries offer contracts of work, but this is what has made Indonesia attractive to foreign investors," he explained.

He said one of the appealing features of a CoW was its lex specialis status. Because the issuance of a CoW requires the approval of the House of Representatives, its status in Indonesia's legal hierarchy is equal to that of a "special law". Changing the content of a CoW therefore requires the House's concession.

A CoW exempts mining companies from having to implement future government regulations that run counter to their interests.

However, if a regulation issued after the CoW was signed proves to be favorable, the company must abide by its contractual obligations.

With Indonesia decentralizing its mining authority, CoWs provide legal protection against local governments' attempts to overtax foreign mining companies, he said.

Also, armed with the lex specialis, mining companies' loan applications to international creditors are more credible, he said. "This is what is called the bankability (of a contract)."

Nonetheless, the legal fortress provided by CoWs and Indonesia's proven track record have not prevented foreign mining firms from avoiding Indonesia this year.

Coutrier said that the country had not attracted one mining investor so far this year.

Also, the government said earlier some 20 local and foreign mining firms had abandoned exploration activities.

The mining industry blames this development on the legal uncertainties that arose with the implementation of the new autonomy law.

"No investor wants to come in under the mining law No. 11/1967. It's outdated and contradicts the more current autonomy law No. 25/2000," he said.

He said investors were waiting for a new mining law before considering investing in Indonesia. The government, he added, was expected to pass a new mining bill sometime soon.

Coutrier warned that if Indonesia wanted to maintain the revenue level from the mining industry, it must seek new firms to replace four mining companies whose mine deposits were nearly depleted.

These four companies include gold mining companies PT Kelian Equatorial Mining in East Kalimantan and PT Newmont Minahasa Raya in North Sulawesi.

With a success ratio of between 1 percent and 2 percent, replacing these companies will require some 200 new explorations, he explained.(bkm)