Local mining industry remains in the doldrums

Moch. N. Kurniawan, The Jakarta Post, Jakarta

In this first year of the implementation of regional autonomy, the country's mining industry remained in the doldrums.

The autonomy laws were, in the beginning, expected to solve security problems confronting mining companies since the downfall of former president Soeharto in mid-1998.

As it turned out, this year, mining operations continued facing problems, ranging from land disputes, labor strikes, illegal mining, blockades and lawsuits.

The autonomy laws -- consisting of the Autonomy Law No. 22/1999, which gives greater freedom to local legislators to run their political and economic affairs, and the Intergovernmental Fiscal Balance Law No. 25/1999, which allows the regions to gain greater benefits from the development of their natural resources -- came into force on Jan. 1 2001.

The laws which at first were expected to become a solution have in fact created multi-faceted problems -- in the sense that they have been used liberally as an excuse for many locals to pressure mining investors to meet their demands.

Among companies facing such problems this year are coal mining company PT Arutmin Indonesia in South Kalimantan, PT Kaltim Prima Coal (KPC) in East Kalimantan, gold mining firm Kelian Equatorial Mining (KEM) in East Kalimantan and state tin mining firm PT Timah Tbk.

Illegal miners have for a long time been causing trouble for Arutmin's operation in Kotabaru regency. When the police moved to stop them by confiscating their mining equipment in the middle of the year, the illegal miners staged protests and forced the police to return the equipment.

Arutmin produces 8.7 million tons of coal a year.

KEM has also been complaining about the troubles caused by illegal miners on its operation in West Kutai regency.

Last year, the illegal miners mostly harassed foreign mining operations, while most of the operations of the state mining companies remained relatively safe.

But, in this gloomy year, Timah, which was considered the world's most efficient tin mining company and touted as a model for all the country's state companies, has been pushed to the brink of bankruptcy due to the illegal miners.

The illegal miners which operate around Timah's operation on Bangka and Belitung islands in the Sumatra Straits have not only paralyzed Timah but also pushed down the world's tin price by flooding the market with cheap tin.

The government has actually set up a special team to handle the illegal miners but the team has yet to prove its effectiveness.

KPC, a joint venture of Anglo-Australian Rio Tinto and Anglo- American energy firm BP Plc. which produces 15 million tons of coal per year in Sangatta, East Kalimantan, is facing a different problem.

It has been constantly under pressure from the East Kalimantan administration to sell its 51 percent stake to a joint venture partly owned by the administration at the price set by the administration, which is lower than the price set by the company.

Under the contract signed in the 1980s, KPC is obligated to sell a 51 percent stake to the Indonesian government, state companies, Indonesians-controlled private companies or Indonesian citizens after ten years of operation.

In its latest pressure bid, the provincial administration recently filed a lawsuit against the company at the South Jakarta District Court on charges of intentionally delaying the divestment program.

In addition to harassment, blockage and lawsuits, many mining companies had to deal with the local governments imposing new levies and taxes on them in a bid to boost revenue.

This is actually a breach of the legal contracts signed with the central government, but in most cases, the central government, from which the investors asked for help, looks impotent to force the regions to revoke the taxes.

Firdaus Asikin, an analyst at PriceWaterhouseCoopers said all these problems had further deteriorated the country's mining investment climate, which has been hurt by the prolonged social and political turmoils.

He warned no new mining investors would be willing to come to Indonesia in the coming years, if the government couldn't cope with the problem.

Indeed, many mining companies have suspended their operations due to the security problems, while new investors have delayed their investment plans.

The Indonesian Mining Association's executive director P.L Coutrier said it was too early to conclude that the government's autonomy policy had aggravated the mining industry's problems as the policy has been in place for only a year.

"The autonomy is a good concept. That many problems remain, it is because it is just one year old," he told the Jakarta Post.

He was optimistic that in the long run, problems now confronting the mining industry would be solved thanks to the autonomy policy.

All stakeholders should work together to make a success out of the policy rather than blaming each other, he said.

Director general of geology and mineral resources at the Ministry of Energy and Mineral Resources Wimpy S. Tjetjep agreed that the autonomy policy was a good concept.

"The main problems are legal uncertainty and security concerns," Wimpy said.

Some people may say the autonomy laws were good enough, but the government has decided to review them.

In order to end the chaotic situation in the mining industry, the government has planned to introduce a new law to replace the existing Mining Law of 1967, which is considered too centralistic, thus no longer suitable to the spirit of autonomy.

According to Wimpy, the government will submit the new mining bill to the House of Representatives early next year.

The new law would ensure the regional governments's authority over the mining sector, a legal certainty over the existing contract of work, and give no discrimination for new local and foreign investors, Wimpy said.

The new law is thus expected to give a stronger legal foundation for the regions to benefit from their mining resources and for investors to gain protection for their investment.