The new mining law requires existing contract holders to submit a comprehensive plan for their entire working area, otherwise they may lose part of their designated mining area under a capping provision stipulated by the newly endorsed law.
Article 171 of the law, which is part of a transitional regulation, stipulates existing contract holders must submit activity plans for the entire mining area allocated to them within a year.
If they fail to do so, the concession area designated to them will be adjusted according to the law which can limit the size of the mining area if the plan is not satisfactory.
Energy and Mineral Resources Ministry Purnomo Yusgiantoro said Wednesday that mining area size in several existing contracts had been too large.
"We have received complaints from local government authorities. They said mining areas in contracts were too large, but the realization of activity was too small," Purnomo said, adding that these mining contracts were signed before he took office in the ministry.
He added that complete plans were needed to measure the companies' capacity to operate within the areas allocated to them.
"The company must report to us if they think they will not be able to conduct operations in the whole area. Then, area management can be returned either to central or local government," Purnomo said.
Bambang Gatot Ariyono, the ministry's director for coal and mineral development, said the more detailed implementation of this measure would be stipulated in the implementing regulations to be issued accordingly.
"The law still needs to be clarified further with several derivative regulations," Bambang said.
The mining law, passed by legislators Tuesday, adopts a new permit system which replaces the Contract of Work (COW) and mandates a review on existing contracts.
However, the adjustments would be minor, according to Purnomo and in principle, the law will honor all existing contracts.
"We'll keep respecting the existing Contract of Work (COW). The government cannot suddenly put the contract off. We have been sued several times in international arbitration on contract matters and we were frequently defeated," Purnomo said.
He added Indonesia needed to respect existing contracts to secure investment from the sector.
The government has targeted that investment in mining should reach $1.55 billion this year. The figure is expected to increase to $2.14 billion in 2009.
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