New forestry law adds to mining sector woes

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.