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Indonesian law may deter investment


Indonesia's parliament on Tuesday approved a long-delayed mining law that experts say will deter large-scale investments. The biggest change is that permits known as contracts of work, which were issued by the central government and were valid for 30 years with a possible 20-year extension, will be replaced with licences. In most cases, licences will be issued by district governments, which are regarded as more inconsistent than the central government and can be changed or cancelled with little or no warning. Indonesia's mineral deposits, particularly coal, gold, copper and tin, are amongst the world's richest but its mining policies have been amongst the least attractive to foreign investors. Investors have largely ignored Indonesia since 1999 because of legal uncertainties, especially following the devolution of many powers to provincial and district governments. However, mining groups such as Freeport-McMoRan, Inco, Newmont and Newcrest have operations in the country.
Priyo Pribadi Soemarno, Indonesian Mining Association executive director, said the "door is now closed" on large mining investments. He rejected legislators' arguments that moving to a licence system would bring Indonesia into line with countries such as neighbouring Australia. "Their governments are stable, not like in Indonesia where things can change very easily," he said. "There's not enough legal stability here to ensure transparent implementation of a licence system." The licences will be valid for 20 years, with the option of two 10-year extensions. Separate applications will be required for exploration and production. Under the existing system only a single contract is required. The size of exploration concessions will be capped at a fraction of the current largest areas. Exports of raw ore will be banned, forcing miners to build smelters or use the few existing processing facilities. Additional taxes will also be levied. Rio Tinto said on Tuesday that it would study the new law before deciding whether to proceed with a $2bn (?1.4bn, £1.3bn) nickel mine on Sulawesi island. Rio Tinto, which had been negotiating for years, had been hoping to secure a contract of work before the new mining law was passed. However, disputes with the local government have delayed the process. The new law will benefit foreign investors in small-to-medium- sized concessions, particularly of those extracting minerals like such as coal that do not require processing. Previously foreigners were only allowed to sign contracts with concession holders. They will now be allowed to now they can own shares in the concessions.
Copyright The Financial Times Limited 2008
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