Indonesian mining still lures investors due to good track record

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)