Mining industry remains in the doldrums

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.