Concern for investment in Indonesia's mining sector
Updated
Indonesia's peak mining body has warned investment in the sector for 2009 could drop below one-billion dollars for the first time in five years because of stalled changes to legislation.
Presenter: Stephanie March
Speaker: Freehills international law firm partner Haydn Dare; Indonesian Mining Association executive director Priyo Pribadi Soemarno.
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MARCH: After languishing in parliament for three years, legislation to revamp Indonesia's mining sector was passed in January. It replaced legislation from the Suharto-era that had been criticised for not giving the government enough control over mining investment.
Hayden Dare is a partner with Freehills international law firm.
DARE: There was a growing feeling within the Indonesian Government that the old contract of work system, the old system, was not working to the Indonesian Government's advantage. They believed that the long term contracts signed under a previous regime were more beneficial to foreign invetors than they should have been.
MARCH: The new legislation benefits smaller operators by limiting the size of exploration areas and reducing the time miners have to extract resources. The government has until January next year to finalise the supplementary regulations that will dictate how the law is applied. Priyo Pribadi Soemarno from the Indonesian Mining Association, says at least six big companies from Australia and Canada are holding off on new investments amid the uncertainty.
SOEMARNO: They are also not really satisfied with the conditions, like, condition about the divestment, the condition about the refinery. Some company is still studying whether the regulation will make them satisfied or safe for the long term basis.
MARCH: Mining investment climbed to one-point-six billion US dollars in 2008, up from one billion in 2004. But most of that came from existing miners, not new investors. Mr Soemarno believes the years of uncertainty have seen Western investors hold back, although he says it's unlikely resource hungry Asian nations will exercise the same caution.
SOEMARNO: Maybe there will be some investment coming from China and India, maybe they can accept the conditions in Indonesia, but the investment from other countries like Australia, from Canada, they need to have some kind of guarantee for big investment.
MARCH: While the law has been in the public domain for almost 12 months, investors are still not sure how the supplementary regulations will affect the sector. The most recent regulation, signed off in September by former Mining and Energy Minister Purnomon Yusgiantoro, limits outsourcing contract work and forces miners to process minerals in Indonesia.
Critics say the regulation could potentially push up costs for foreign firms because they would have to buy new equipment, and hire new staff. A ministerial shake-up adds to the confusion. Mr Yusgiantoro's replacement Darwin Saleh was sworn in last month, and is yet to say if he will push forward with the rule.
Mr Soemarno is worried the new minister won't have enough time to widely consult on the regulations before they're due to be passed in January.
SOEMARNO: So far I understand government not discussed yet with the regional government, and other sectors like department of forestry, environment. This is my concern and everybody also waiting the good signal from government that they are ready to discuss.
MARCH: Haydn Dare from Freehills International law firm says the regulation in untenable in its current form.
DARE: A lot of the major mining houses at the moment use contract mining services including Bumi resources. All their mining is done by contract miners......So I think yes if this regulation stands it will increase costs but we question whether it will stand.
MARCH: Mr Dare also believes the ministerial change is of concern.
DARE: I think it is a concern that we have a new minister at this critical point in the passing of these new regulations. So it's not helpful at this stage but that is just a fact of political life we have to live with.
MARCH: But despite the almost 12 months of uncertainty since the law was passed, Mr Dare says the current environment is better for investors than it was during the three years the legislation remained in parliament.
DARE: Now at least people have the goal posts and whether they like the goal posts or not that is for them to decide... but - at least - subject to those regulations of course - but now at least you have a framework in which you can make your investment decisions, so I think there will be an increase and it think there will be those people who think this is an attractive place to invest and those who do not.
