Mining Bill Questions May Delay Investments
There will be few major investments in Indonesia’s mining sector until the government clarifies uncertainties in the recently passed mining bill, industry analysts and companies said on Monday.
“Whether we like it or not, the mining bill has been passed. It’s too early right now for us not to give the new bill a chance to develop because it is still evolving from our perspective,” said Omar S. Anwar, president director of Rio Tinto’s Indonesian operations.
Investors will likely demand legal guarantees that have yet to be clearly explained in the legislation before they will start considering multibillion-dollar projects, Omar said.
These include matters such as terms on land use and tenure, the security of contracts and the royalties that mining companies must pay to local governments.
“Parts of the legislation are still very general, very vague - we don’t know what they mean,” Omar said. “The industry needs to sit down with the Ministry of Energy and Mineral Resources and offer feedback on how the mining companies might be able to deal with these new conditions.”
Companies are particularly concerned, for example, that the system for exploration and mineral-extraction licenses has become more complicated, said Priyo Pribadi Soemarno, executive director of the Indonesian Mining Association.
A new two phase-licensing system requires mining companies licensed to explore a particular region to apply for another permit to actually extract any resources they discover. Under the old system, a single permit covered the entire mining process from exploration to extraction to mine closure.
Priyo said companies now worry that the government could refuse to grant mine-development licenses to companies that have already identified resource deposits.
They fear that they could spend millions of dollars exploring an area but end up losing the rights to develop it, he said. “The whole licensing system is still extremely uncertain,” Priyo said.
“If the government truly wants to make this system work, it should start bearing exploration costs.”
Companies are also concerned that negotiating second licenses for extraction and development could be time-consuming, he said.
William Deertz, a technical advisor at PricewaterhouseCoopers Indonesia, said the mining law’s restrictions on land use and more complicated permit system seem to favor smaller mining companies.
Smaller miners tend to have stronger relationships with provincial and municipal governments in Indonesia than larger mining firms. Such ties are often crucial to securing mining concessions.
Deertz said these factors might delay significant investments in the mining sector.
“Is there going to be no investment at all? No. But is it going to be the optimal investment that the country could achieve with the right regulatory environment? No,” Deertz said. “There will be investment, but on what scale and what kind of projects?”
“Whether we like it or not, the mining bill has been passed. It’s too early right now for us not to give the new bill a chance to develop because it is still evolving from our perspective,” said Omar S. Anwar, president director of Rio Tinto’s Indonesian operations.
Investors will likely demand legal guarantees that have yet to be clearly explained in the legislation before they will start considering multibillion-dollar projects, Omar said.
These include matters such as terms on land use and tenure, the security of contracts and the royalties that mining companies must pay to local governments.
“Parts of the legislation are still very general, very vague - we don’t know what they mean,” Omar said. “The industry needs to sit down with the Ministry of Energy and Mineral Resources and offer feedback on how the mining companies might be able to deal with these new conditions.”
Companies are particularly concerned, for example, that the system for exploration and mineral-extraction licenses has become more complicated, said Priyo Pribadi Soemarno, executive director of the Indonesian Mining Association.
A new two phase-licensing system requires mining companies licensed to explore a particular region to apply for another permit to actually extract any resources they discover. Under the old system, a single permit covered the entire mining process from exploration to extraction to mine closure.
Priyo said companies now worry that the government could refuse to grant mine-development licenses to companies that have already identified resource deposits.
They fear that they could spend millions of dollars exploring an area but end up losing the rights to develop it, he said. “The whole licensing system is still extremely uncertain,” Priyo said.
“If the government truly wants to make this system work, it should start bearing exploration costs.”
Companies are also concerned that negotiating second licenses for extraction and development could be time-consuming, he said.
William Deertz, a technical advisor at PricewaterhouseCoopers Indonesia, said the mining law’s restrictions on land use and more complicated permit system seem to favor smaller mining companies.
Smaller miners tend to have stronger relationships with provincial and municipal governments in Indonesia than larger mining firms. Such ties are often crucial to securing mining concessions.
Deertz said these factors might delay significant investments in the mining sector.
“Is there going to be no investment at all? No. But is it going to be the optimal investment that the country could achieve with the right regulatory environment? No,” Deertz said. “There will be investment, but on what scale and what kind of projects?”