Mining industry faces uncertainty in 'reformasi' era

Mining industry faces uncertainty in 'reformasi' era

By Johannes Simbolon

JAKARTA (JP): The fall of Soeharto in May 1998 marked the
beginning of the era of reformasi, with high expectations for
democracy and openness in the country's political life.

The end of Soeharto's 32-year presidency also carried far-
reaching implications for the country's business sector.

In particular, it brought insecurity for the mining sector
which enjoyed stability and security for decades under Soeharto's
high-handed administration, an analyst said.

"From mid-1998 until today, a climate of indecision has hung
over the industry in general and the mining industry in
particular," said the executive director of the Indonesian Mining
Association (IMA) Paul Louis Courtier.

"The euphoria of reforms and democracy sparked general
criticism of big corporations which are accused of not doing
enough to improve the welfare of the local people."

As law and order collapsed, illegal mining proliferated in the
mineral-rich provinces across the country, including East
Kalimantan, South Kalimantan, Central Kalimantan, South Sumatra
and North Sulawesi. Law enforcers were incapable of handling the
rampant lawlessness, Coutrier said.

He said the illegal mining activities initially only involved
local people but gradually well-to-do outsiders arrived with
capital and heavy equipment to capitalize on the situation.

In coal-rich South Kalimantan, illegal miners extracted
between five million tons and six million tons of coal worth Rp
990 billion (about US$140 million) over the past two years,
according to the provincial daily Banjarmasin Pos.

Major mining companies in the province, including PT Adaro
Indonesia and PT Arutmin, have long complained of illegal miners
encroaching on their contract areas.

The local authorities have thus far been unable to resolve the
matter.

State-owned general mining company PT Aneka Tambang (Antam)
also faced similar problems at its gold mine in Pongkor area,
West Java, as coal mining company PT Bukit Asam did at its coal
mines in South Sumatra and West Sumatra.

Illegal mining inflicts great costs on both the government --
the miners of course do not pay taxes and mining royalties -- and
the environment because the activities do not come under an
environmental protection program.

Dozens of illegal miners have been killed in landslides in
Antam's Pongkor gold mine last year.

Demand

Political openness, which started in urban areas with
Soeharto's exit, has gradually spread to rural areas.

In the new environment of democracy, villagers who long
suppressed their dissatisfaction over mining operations in their
areas suddenly found the courage to demand more financial
benefits from mining companies.

In some cases, the expression of their demands verged on
anarchy.

Dayak tribespeople occupied the gold mines of PT Indo Muro
Kencana -- a subsidiary of Australian mining firm Aurora Gold --
in Betmen, Halubai, Permata and Kerikil, in North Barito regency,
Central Kalimantan, in the middle of the year.

Some of the mines remain occupied.

They claimed Indo Muro appropriated their land during
Soeharto's era without paying full compensation and used police
officers and members of the military to forcibly evict them.

Indo Muro and the local authorities have found it difficult to
resolve the dispute because some of the villagers have refused
all offers of compensation, arguing the mines are their ancestral
property and are not for sale.

Another landmark case is the dispute between the Minahasa
regency administration in North Sulawesi and gold mining company
PT Newmont Minahasa Raya, a subsidiary of American mining firm
Newmont Corp.

The regency sued the gold mining company in the Tondano
District Court for refusing to pay C-class taxes on building
materials and industrial minerals, including stone, sand and
kaolin.

Under the existing regulation, the C-class taxes are payable
by mining companies to local administrations.

Newmont refused to pay the C-class taxes on the grounds that
it was not included in the taxes stipulated under its contract of
work.

The company acknowledged excavating the soil containing the
building materials and industrial minerals, but it did not use
the materials. It said it removed them to facilitate the
excavation of the gold deposits.

The regency insisted Newmont pay for the excavation of the
overburden and hired noted lawyer OC Kaligis to represent it in
the suit.

The Tondano court has held several hearings, which were marked
by rallies by supporters of both sides.

The country's mining industry is closely watching the verdict.

Analysts said the lawsuit reflected the dissatisfaction felt
by the Minahasa regency over the fact it received only a small
amount of revenue from Newmont, with the largest revenue taken by
the central government.

They also blamed the former administration of Soeharto for not
consulting with the Minahasa regency during the drafting of
Newmont's contract of work.

Coutrier said mining companies were being blamed for the
failure of Soeharto's mining policies.

"Most of the producing mines are under criticism for
environmental and social dissatisfaction. In many cases, this has
its roots in the dissatisfaction against the previous regime but
the companies are being blamed," he said.

Regional autonomy

Under the existing regulation, mining companies are required
to pay royalties to the central government, which keeps 20
percent of the royalties and delivers remainder to local
administration through state budgets disbursement.

The government receives between 1 percent and 2 percent of the
gold sales and 13 percent of coal output in royalties from mining
companies.

The provinces complain that the royalty split is only good on
paper and that they never receive the royalty payment in full.

The central government negotiates with foreign investors on
the contract of work and consults with the House of
Representatives on the their contents before they are issued.

For many years, no consultation was made on the contents of
the contracts with the provincial administrations and the latter
were often surprised to discover that mining exploration was
designated for their area.

The central government changed the policy several years ago to
allow the provincial administrations to express opinions on the
draft contracts of work prior to their issuance. The policy did
little to end the dissatisfaction.

In response to growing separatist sentiments in the mineral
and hydrocarbon-rich provinces cross the country after Soeharto's
fall, B.J. Habibie's Cabinet proposed two bills to increase the
provincial administrations' revenues from their natural resources
and their role in managing their natural resources.

Autonomy Law No. 22/1999 and the Intergovernmental Fiscal
Balance Law No. 25/1999 were passed by the House of
Representatives in April last year.

Under the Intergovernmental Fiscal Balance Law, the regional
administrations would receive 15 percent of the government's oil
revenue and 30 percent of gas receipts.

As far as mineral mining is concerned, the law stipulates that
the regions will receive 80 percent of royalties and land rent,
with the remainder to the central government.

Of the 80 percent land rents for the regions, 16 percent will
be delivered to the provincial administration and 64 percent to
the regencies which host the mining operations.

Of the 80 percent royalties for the regions, 16 percent will
be delivered to the provincial administration, 32 percent to the
hosting regency and 32 percent to other regencies in the
province.

Aside from land rent and royalties, the regions will also
obtain some portion of taxes payable to the mining companies to
the central government.

The government initially expected to implement the laws in
2001 but Minister of Regional Autonomy Ryaas Rasyid recently said
the implementation would be speeded up to next year.

Mining executives expected the implementation of both laws to
provide bigger revenues to the regions, satisfy the local people
and in turn secure their investment.

The president of Rio Tinto Indonesia, Noke Kiroyan, predicted
investment in the country's mining sector would be stagnant next
year as investors were awaiting the implementation of both laws.

Minister of Mines and Energy Susilo Bambang Yudhoyono also
underlined the importance of raising the welfare of the community
living around mining sites to secure mining investment.

He said the ministry would allocate some plots of land to the
illegal miners for excavation and would push mining companies to
promote community development.

The acceptance of the local people is key to the security of
mining investment.

Indonesian-Australian gold joint venture PT Barisan Tropical
Mining in South Sumatra recently decided to hire pam-swakarsa
(community guards) rather than military and police personnel to
protect its operations.

The company believes that using military members and police
officers could cause more problems than solutions in the era of
reformasi, when the people are no longer afraid to have their
say.