New forestry law adds to mining sector woes

Berni K. Moestafa, The Jakarta Post, Jakarta

It is not the first time the government has faced a tough decision, but the problem of mining operations in protected forests is proving to be a hard nut to crack.

The three-year-old dilemma has pit legal certainty against environmental protection. Advocates on both sides claim to hold the overriding benefit and are urging the government to go their way.

But inside the government an unbridgeable gap is preventing it from reaching a decision.

Fighting off the country's reputation as a legal mess, the Ministry of Energy and Mineral Resources is campaigning for mining companies' legal rights.

On the other side of the coin, the Ministry of Forestry remains adamant that mining companies on protected forest land must pack up and leave the area.

The land they refer to covers some 11.4 million hectares of protected forest in Sumatra, Java, Kalimantan, Sulawesi, Nusa Tenggara islands, Maluku islands and Irian Jaya. Some 150 companies own mining permits there, covering about one-fifth of the forests' protected areas. Some of these companies are multinationals, such as Freeport, Newmont and BHP.

Analysts have warned that forcing them to waive their rights without compensation would almost certainly draw condemnation from the global mining industry.

That the problem even existed in the first place is yet another example of how messy things can get for investors in Indonesia.

"We have here a problem the government has created themselves," said Paul L. Coutrier, an executive at the Indonesian Mining Association (IMA)

Nothing was wrong with the permits until the government issued Law No.41/99 on forestry, which bans open-pit mining operations in protected forests.

Subsequently, about 150 mining companies were forced to suspend operations in compliance with the Forest Law.

One case that has come to public attention is the nickel mining operation of PT Gag Nickel on Gag island. The island is believed to hold the world's largest nickel deposit aside from those found in Goro, New Zealand and Voissey Bay, Canada.

But Gag Nickel, a joint company between the Australian-based business group, BHP Pty. Ltd., and Indonesia's state-owned mining form PT Aneka Tambang (Antam), is eying a nickel deposit on protected forest land.

Coutrier said the problem should not be seen as another clash between mining companies and environmentalists. "Avoid the skin deep look, there is a broader perspective to it."

For one, he said, mining companies agreed to conservation efforts of forests. At the same time, however, they wanted the government to honor their contracts.

Their concern is valid. The government has a record of unilaterally scrapping contracts with foreign investors, putting both sides into lengthy legal disputes.

Previous snags include the renegotiation of 27 contracts of independent power producers, resulting in millions of dollars of arbitration proceedings filed against the government and state companies Pertamina and PT PLN.

"It is crucial for us to honor these (mining) contracts and uphold legal certainty," said the Director General for Geology and Mineral Resources, Wimpy S. Tjetjep.

But Coutrier added that next to hurting investors' confidence in an industry already plagued by legal uncertainty, banning mining companies deprived locals from an economic boost.

He said the government should take into account the multiplier effect brought about by mining companies' investments.

"The mining industry is among the few industries that dares to invest in the eastern part of Indonesia," he said referring to Gag Nickel's operation on Gag island, close to Papua.

Mining companies may be pioneering, but many are frightened with Indonesia's notorious investment climate.

Since the end of Soeharto's iron-fisted regime in 1998, the general collapse of law and order has sucked mining companies into legal limbo.

Illegal mining operations flourished amid widespread corruption and several mining operations faced disruption from unruly labor unions or locals' protests.

Subsequently, new investment into the sector has fallen although Indonesia continues to hold lucrative mining deposits.

Scant exploration activities mean the government must brace itself against declining revenues from the sector as mining deposits deplete.

According to PricewaterhouseCoopers' 2001 mining report, mining investment fell by 35 percent in 2000 from the previous year.

It said tax revenue for 2000 amounted to US$500 million, although it did not mention a comparative figure for the year before.

With no end in sight to the gloom in the mining sector, opening up protected forests may not be an option after all.

Between 1.6 million to 2.1 million hectares of forests disappear every year, making deforestation here among the quickest paced in the world, according to estimates from the Ministry of Forestry.

Indonesia can simply not afford to lose anymore forests to new mining operations, let alone protected forests, said Longgena Ginting of the Indonesian Forum for Environment (Walhi).

"Protected forest areas are practically all that is left from timber operations, and even these areas are encroached by illegal loggers," he said.

Longgena added the economic benefits that mining operations promise would come at the expense of environmental damage.

"We're talking about flooding, landslides and mining operations polluting the environment. It will also drive away people whose life depends on forest resources," he said.

Resource scarcity has been blamed for the surge in conflicts among forest communities and looting from timber operations.

The World Bank warned that at the current deforestation rate, Kalimantan's forests could vanish in nine years and Sumatra's lowland forests in four.

These are no empty warnings, and the government wants to avoid adding to the country's rapid deforestation rate.

However, political analysts often attribute the government's foot dragging on sensitive issues to aggressive legislators, who hold ministers accountable by their policies.

They said some ministers limit their responsibilities by involving legislators in the decision-making process.

And after three years of no progress, the problem of mining operations in protected forests has been completely handed over to the legislature.

Any decisions from them, the government said, would be final.

Letting the legislature play the nutcracker on tough decisions, however, raises the question of what is the government's commitment in both mining and environmental issues.