Mining firms in limbo under regional autonomy

JAKARTA (JP): Six months after the implementation of regional autonomy, unprepared local governments have left mining firms adrift in legal limbo, the Indonesian Mining Association (IMA) said on Wednesday

IMA executive Kosim Gandataruna said in a report to legislators that the decentralization of powers over mining came too quickly and lacked preparation.

"As a consequence of this hastiness, a legal vacuum has emerged and with it the investment climate has deteriorated," Kosim said at a hearing with House of Representatives' Commission VIII, which among other things overseas mining affairs.

Regional autonomy is based on two 1999 laws that gave the country's regions greater authority to manage their own administrative and financial affairs.

Foreboding the impact they have had on the mining sector, mining firms had warned the government against decentralizing mining powers to unprepared regions.

In response, the government promised to grant only prepared regions full autonomy over the mining sector.

But no presidential decree regulating this requirement has been issued to date.

Mining firms were also facing new fiscal regulations that imposed numerous levies as local administrations tried to raise as much local revenue as possible.

"The cumulative effect of all this is stagnation, or even dramatic regression in the exploration, development and exploitation of Indonesia's mineral resources," he said.

The IMA's bleak prognosis for the mining industry came after some 20 foreign and local mining firms were reported earlier this year to have stopped prospecting.

The association has blamed this development partly on the legal uncertainty created by an obsolete mining law.

Kosim said the government must replace the present central- administration-orientated Mining Law No. 11 of 1967 with a new one reflecting the decentralized industry.

Legal uncertainties also led to security problems as law enforcement deteriorated, he added.

Security threats arose from various sources such as demands for land compensation payments, environmental problems and labor disputes.

Giant coal miner PT Kaltim Prima Coal in East Kalimantan has been unable to maintain production at its normal rate due to a series of blockades by its workers and local residents.

Meanwhile, the activities of illegal miners have been interfering with the mining operations of gold mining company PT Aneka Tambang in West Java, as well as a number of coal mining companies in East Kalimantan.

Kosim said the reform era had brought to the surface public demands for more transparency, greater revenue sharing, more local participation in the mining sector and better community development programs.

He also urged the government to improve the quality of its human resources both at the local and central levels.

The government should review the existing regulations in the forestry, fiscal and environmental sectors that impacted upon the mining industry, he added.

"A comprehensive overhaul has to be carried out simultaneously and within a short space of time to restore the conducive conditions that have proven to be the key to the rapid development of the mining sector over the past three decades," he said.

Among these success factors were Indonesia's mineral wealth, political and social stability, law and order, and a conducive investment climate, he said.

Another IMA member, Bob Parsons, suggested that the government remove the mandatory divestment requirements from future contracts of work with foreign mining firms.

"The foreign investor puts in the money up front and takes all the risks, and then once the risk has been taken they find themselves in a position where they have to divest. That's not an attractive set of rules," he explained.

He said that this requirement was not necessary as it only discouraged new investment in the highly risky mining industry.

According to him, the host country should focus on tax payments, job creation and community development by mining investors. (bkm)