Mining in protected forests

Mining in protected forests

Apparently concerned by the risk of messy litigation, as state
oil and gas company Pertamina is now experiencing in its dispute
with U.S.-based Karaha Bodas Company, the House of
Representatives approved last week a government regulation in
lieu of law allowing mining firms to resume open-pit mining in
protected forests.

This political compromise will once and for all put an end to
the imbroglio that has virtually stopped investment in the mining
sector since 2002 and threatened to plunge the government into
messy and costly international litigation.

The decision nonetheless seemed to be a very tough one, with
six of the nine factions in the House outrightly opposing the
regulation. But since the decision was taken through a vote, not
through consensus, the three largest factions in the House, which
backed the government in this matter, were able to flex their
muscle and push through the regulation.

This is, however, a dangerous precedent as the House's
decision virtually violates Law No. 41/1999 on forestry, which
prohibits open-pit mining in areas designated as protected
forests and conservation areas.

The great dilemma, though, was that the government licensed
about 150 companies, mostly foreign ones, to carry out open-pit
mining in areas classified as protected forests long before the
1999 law, and many of the companies had invested hundreds of
millions of dollars in their concession areas.

Unilaterally revoking their concessions on the virtue of a law
that was made retroactive would surely leave the government
facing dozens of messy lawsuits and billions of dollars in
possible damages. Serving as a warning is the case of Pertamina,
whose overseas assets are now at risk of being seized because
Karaha Bodas won a lawsuit in a Swiss arbitration court for more
than US$290 million in damages as a result of the government's
unilateral termination of a contract.

The government did have a valid point in its argument that the
sanctity of a contract should be honored, otherwise our economy
would be in complete chaos. Moreover, mining is now one of the
most promising resource-based sectors in the country, especially
in the less-developed eastern region, and has multiple benefits
for the economy and the people.

However, allowing all of the mining concessionaires to
continue their open-pit operations would have a devastating
impact on Indonesia's forest resources and biodiversity.

The new regulation seems to be the best compromise solution to
this dilemma because it specifically allows only 13 of the 150
mining concessionaires to resume their open-pit operations, under
very strict environmental guidelines.

The 13 concessionaires were selected by a joint House-
government committee based on the amount of investment already
made, the commercial volume of mineral deposits already found in
the concession areas and the potential benefits of the operations
for the country's economy.

Put another way, the new law does not reopen protected forests
to new investors, not even to the other 137 concessionaires who
signed their contracts before 1999. The regulation will not be
applied across the board, but was drafted specifically for the 13
selected concessionaires.

This compromise is aimed at correcting a grave mistake made by
the government in drafting the Forestry Law at the least cost to
both taxpayers and the environment.

Even though illegal loggers, not mining firms, are the biggest
threat to our forestry resources, since most major mining
companies are usually more careful about their environmental
management in view of the long-term nature of their investment,
obviously the 13 concessionaires being allowed to resume their
operations should be stringently supervised by both the House and
non-governmental organizations.

Moreover, the House and environmental NGOs should see to it
that the 13 concessionaires are the only companies allowed to
carry out open-pit mining in protected forests, even at the risk
that several of the other 137 concessionaires may file lawsuits.

The international community will support the government in
this matter because the global community also benefits from the
biodiversity and climate-regulating role of our tropical forests.