Supporting development of eastern Indonesia

Paul L. Coutrier, Executive Director Indonesian Mining Association (IMA), Jakarta

Only in the last two years the government came to realize that eastern Indonesia (KTI) has been lacking far behind the western regions; estimates say the east is about 40 years behind western Indonesia, mainly Java. But it is only in this present period of reform that a special Ministry for the Acceleration of Eastern Indonesia was formed.

Yet the most important thing to do is to persuade industries and other economic activities to invest there. Without new investments there will be no economic growth and of course no additional employment. So far it has only been the mining industry which has been willing to invest in the east. What attracts the mining industry is the geological potential to find and develop significant deposits of metals, such as nickel, gold, silver, copper and coal in this area.

There are at least four mining projects in KTI with a potential of US$3.5 billion ready for foreign direct investment (FDI) in North Maluku, Papua and Central Sulawesi. This potential has been waiting for more than two years for government approval. They may be lost because other countries like China, Chile or Kazakhsatan, are also waiting for mining investment funds. FDI is hard to get because it is not a government foreign borrowing. In fact other areas like Sulawesi Utara has already lost the opportunity for such FDI because of the indecision of the government and the lack of legal certainty regarding illegal mining in concession areas.

Many people do not realize what a $3.5 billion investment could mean in terms of multiplier effects for KTI. A low figure of 20 percent of project value means that some $700 million or Rp 6.3 trillion will be available for local economic activities. Imagine the income tax they can contribute to the local government, also the multiplier effect and the employment it can generate. There are more than 20 other projects in the pipeline awaiting for government approval.

If the government is serious to develop KTI a firm decision should be reached on the status of these projects.

Most of the cases above originate from the inconsistency policy of government agencies. Most of the projects used to be outside protected forests and has been granted permits before, but later the agency declared these sites as protected forests, or did not extend their permits of operation because of their adjacent locations to protected forests.

Many companies are not even officially informed that their area has been declared as protected forests. Geographical coordinates of these forests vis-a-vis mining rights are even not available as everything was decided from Jakarta.

To the exploration companies, the locals and the regional governments this is very frustrating because after all, they have the right to judge the development. Without proper geographical coordinates one can not solve "overlapping areas" of conflict.

There are already conflicting figures on the size of overlapping areas. One company was told that 40,000 hectares of its site is in a protected forest while the real concession area left is only 4,000 ha. This is, of course, absurd and proves lack of professionalism. Since the companies have issued hundreds of million dollars in their operations, canceling the previous permits may develop into an international arbitration case.

The attitude of many people and officials to this kind of dispute is very much influenced by the statements of certain groups who are on the outset anti mining. Their faulty statements were unfortunately also quoted by the media and certain officials outside the mining sector. The group claims that thousands of mining permits has been issued by the government, covering a total area of 44 million hectares which enable the companies to "occupy" about 35 percent of the total land area.

This is, of course, not true and is only based on their wrong perception of what the permits really mean. In fact, mining permits were issued to big companies in the form of exploration permits. Based on these permits the companies have the sole right to explore minerals in that area and pay taxes for the whole area of exploration.

The area which has been explored and does not have any deposits will be relinquished and returned to the government. Last year the total area of exploration for Contract of Works (Kontrak Karya) remained only six million ha. This includes about 2 million ha of "overlapping areas" with protected forests because of the problem of mapping.

This estimate is even on the high side because many exploration companies have left the country because of the inconsistency of government policy and lack of legal certainty. Government policy can change very suddenly especially in the fiscal regime. This is not conducive for small and medium scale exploration companies.

Exploration companies have retained only a small area where mineral is found for production. The total area of all production fields in Indonesia is only 135,000 ha or 0.1 percent of the total land area. This already includes area for infrastructure, roads, housing, schools and other public facilities.

In forestry concessions, the timber can grow anywhere in the forestry area and the concessionaire will therefore try to maintain the same size of the forest area from the beginning till the end of his concession right. In mining exploration, the area shrinks as the exploration proceeds.

The exploration area is not really "occupied" by the companies because during the exploration stage there is no change of title of land and people can work as usual. Exploration can be done without significantly changing the environment because only small holes are digged for seismic purposes and sampling. Blaming the mining industry to destroy 11 million hectares is therefore, a false perception.

The success ratio of finding an economic mineral deposit is so small that among the 100 exploration companies, only four will be successful. This is why the government gave permits for prospecting to so many local as well as foreign companies.

To develop KTI, the government should give support and priority to industrial activities ready to develop KTI. The government should have the courage to decide and avoid "business as usual".

The people of KTI are awaiting for actions on developments, not rhetoric. The development should, however, be evaluated holistically following the principles of sustainable development.

In these hard times economic sustainability should be given priority. Once the government has decided to support mining in KTI, all the agencies should implement the decision, unless there is a minister who feels he is not a member of the Cabinet. The mining industry should adhere to the Toronto Declaration issued by the international mining industry which supported the principle of sustainable development.