The mining sector contributes around 30 percent of the total state revenue, but legal uncertainties and unattractive fiscal policies are still plaguing and hampering investment growth in this sector.
For almost 10 years, there have been few major investment projects entering Indonesia.
In the latest PricewaterhouseCoopers report, investors regard Indonesia among countries which, while boasting huge resources, do not provide great opportunities due to unfavorable investment conditions.
Data from the Energy and Mineral Resources Ministry showed investment in mining has been stagnant for several years, this year predicted to grow at a meager 2.5 percent to around US$1.38 billion.
A protracted row between the government and PT Newmont Nusa Tenggara (NTT) over the company's mandatory divestment program, as well as prolonged negotiations between PT Freeport Indonesia and local governments, are feared to have contributed to the adverse climate.
During an interview last week, Mineral Resources Ministry director general of coal, mineral and geothermal energy Simon Sembiring brushed aside suggestions that the two above cases were hurting investment opportunities in the sector.
The following are excerpts from the interview:
Question: What is the latest status of the Newmont divestment process?
Answer: They (Newmont) are now negotiating with local governments. We will see the results on March 3, the second deadline we have given them to complete the deals. We don't know yet what will happen and will have to wait until that day for the results.
What was the reason behind the government's decision to issue a default letter earlier this month, when the divestment was still in progress?
Based on the Contract of Work (CoW), we had the right to warn to the company whenever they were lagging behind the deadline stated in the contract, and the requirement was to divest 3 percent of shares in 2006 and 7 percent of shares in 2007. I decided to issue the letter because we saw this process had not progressed at all.
In the letter, we gave them 11 days to complete the sale of that 10 percent. Their side complained this was not enough time, but we had only asked for an initial principal agreement between local governments and the company, not requiring all the details of deals.
On the proposal that Newmont has almost finalized a 2-percent divestment deal with Sumbawa regency, we don't acknowledge this, since the company had agreed to divest 3-percent to West Sumbawa regency and 7-percent to Sumbawa regency and West Nusa Tenggara provincial administration.
The company and local authorities had agreed on that. We also consulted lawmakers, and they were OK with it. All of a sudden they came with a 2-percent divestment proposal. We cannot accept this because it is not what we had agreed on previously.
Newmont are using these shares as collateral on loans to a group of lenders, would that affect the divestment process? The government believes the divestment cannot be carried out if the shares are being offered as collateral on loans. We want "fresh", free-of-trouble stake. We cannot buy risky shares.
Therefore, in the next divestment process -- under which the company must offer another 7 percent of its stake by next March -- the government (which gets priority to buy the stake) will be firmer, ordering the company to prove shares offered are clean, and are not being offered as collateral.
What about the statement from the State Minister of State Enterprises, which said that the government will give priority to state mining company PT Antam to purchase the share?
I think this is possible. The State Minister of State Enterprises can request approval from the Finance Minister to give Antam priority to buy the stake. Whether it is the government that buys the stake and gives it to Antam, we will see later.
And how about his comment that the government will also prioritize Antam to purchase a 9.36 percent stake in PT Freeport Indonesia?
I think the minister has not been well-informed on this. As far as I know, Freeport is currently in discussions with the provincial government on this. The negotiations have not been finalized.
Some say the cases of Newmont and Freeport have hurt investment climate in the mining sector. Others have gone so far as to say the government is nationalizing its mining sector. Do you have any comment?
This is not true. We are still pretty much open. Everyone can contribute to improving our sector, regardless of their nationality.
However, all the while, we need to take care of our people and the government is required under the Constitution to serve the community as its top priority. I believe a good investment climate depends on law enforcement. Depending on how the law is enforced, investors can gain a sense of security.
A good investment climate is not necessarily reached with a system to please investors and make them smile.
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