Toward a Better Law On Mineral Resources
Indonesia is one of the largest producers of mineral resources in the world. In tin, it comes in second after China, in coal it is third after Australia and South Africa, and the list goes on. Minerals and related products account for 19 percent of the county’s total exports.
In light of the increased importance of the mining sector to Indonesia’s overall economy over the past few years, and with the advent of the 2000 regional autonomy law, the government’s decision in May to revise the 1967 Law on Mining is a welcome step in the right direction.
The new bill, which is currently being deliberated in the House of Representatives and is expected to pass before the next legislative elections in April 2009, updates mineral resource management in Indonesia and replaces the outdated Contract of Work system that has been in place for decades. Under that system, foreign investors were afforded special benefits and incentives to draw them to Indonesia.
The government has argued that the 1967 law needed updating to take into account the significant political and economic changes that have occurred during the past decade, such as the introduction of the regional autonomy law, which provides greater authority to regional governments. The draft bill also provides increased environmental protection and allows for greater recognition of community rights.
So while both the 1967 law and the current draft bill preserve the constitutional principle that mineral resources are a national asset, the draft bill divides the responsibility for the resources between the central government and regional authorities.
The new law should also shift the royalty equation from favoring the mining companies to favoring the state.
All these changes have been accepted by the business community as necessary improvements for the overall well-being of the mining industry. There are, however, concerns over a number of articles that would make it onerous on mining companies. One such article is the requirement that mining companies do some of their processing within Indonesia, a stipulation that would add significant cost to any intended investment.
As the House deliberates the draft bill on a revised mining law, it should seriously consider the views of the business community at a time when the global economy is headed for recession and when international investors will take a long, hard look at investment opportunities. It is clear that Indonesia will need billions of dollars of fresh investment in its natural-resources sector over the coming years from foreign as well as domestic mining operators.
This would be a bad time to send out a wrong signal. The government and the House must work together to put out an “open for business” sign for potential investors if the economy is to maintain its growth momentum. The country cannot afford to turn its back on business by passing unfriendly business legislation. A rise in new investments in the mining sector will be proof of just how effective the new law is.
In light of the increased importance of the mining sector to Indonesia’s overall economy over the past few years, and with the advent of the 2000 regional autonomy law, the government’s decision in May to revise the 1967 Law on Mining is a welcome step in the right direction.
The new bill, which is currently being deliberated in the House of Representatives and is expected to pass before the next legislative elections in April 2009, updates mineral resource management in Indonesia and replaces the outdated Contract of Work system that has been in place for decades. Under that system, foreign investors were afforded special benefits and incentives to draw them to Indonesia.
The government has argued that the 1967 law needed updating to take into account the significant political and economic changes that have occurred during the past decade, such as the introduction of the regional autonomy law, which provides greater authority to regional governments. The draft bill also provides increased environmental protection and allows for greater recognition of community rights.
So while both the 1967 law and the current draft bill preserve the constitutional principle that mineral resources are a national asset, the draft bill divides the responsibility for the resources between the central government and regional authorities.
The new law should also shift the royalty equation from favoring the mining companies to favoring the state.
All these changes have been accepted by the business community as necessary improvements for the overall well-being of the mining industry. There are, however, concerns over a number of articles that would make it onerous on mining companies. One such article is the requirement that mining companies do some of their processing within Indonesia, a stipulation that would add significant cost to any intended investment.
As the House deliberates the draft bill on a revised mining law, it should seriously consider the views of the business community at a time when the global economy is headed for recession and when international investors will take a long, hard look at investment opportunities. It is clear that Indonesia will need billions of dollars of fresh investment in its natural-resources sector over the coming years from foreign as well as domestic mining operators.
This would be a bad time to send out a wrong signal. The government and the House must work together to put out an “open for business” sign for potential investors if the economy is to maintain its growth momentum. The country cannot afford to turn its back on business by passing unfriendly business legislation. A rise in new investments in the mining sector will be proof of just how effective the new law is.