INDONESIA: Mining group warns resources sector in peril

INDONESIA: Mining group warns resources sector in peril

by Asia Pacific, Radio Oz

21st March 2006

Indonesia's peak mining body says it's worried about investor confidence in the sector after a series of violent incidents targetting foreign companies. But the disruptions caused by angry protests seem to be the last thing on the minds of multinational resource and energy companies. New laws currently before the Indonesian parliament will limit the licences and contracts for exploration and exploitation.Experts and industry leaders say the future of Indonesia's resources sector is in peril.

Presenter/Interviewer: Emily Bourke
Speakers: Priyo Pribadi, Indonesian Mining Association; Peter Fanning, chairman International Business Chamber; Noke Kiroyan spokesman PT Newmont Pacific Nusa Tengarra

BOURKE: Western mining companies with major projects across the Indonesian archipelago have been the subject of increased protest action in recent weeks.

The American company Newmont, the largest global gold producer, has suspended exploration at a site on Sumbawa island after an alleged arson attack at the weekend.

Last week, several security officers were killed in Papua province by protestors demanding closure of a gold mine owned by another US company Freeport McMoran.

The Indonesian Mining Association is a non-government organisation that tries to encourage investment in the resources sector.

The Association's Priyo Pribadi says incidents at the mine sites and repeated clashes with local communities are influencing investor confidence.

PRIBADI: Absolutely there will be a negative impact. Even though the mineral resources are quite good and interesting, but if the cases are not handled carefully, the other investors will not come into Indonesia.

BOURKE: He says the government holds the key to boosting foreign investment in the sector.

PRIBADI: The government has to give the investment climate and then the protection security to the mining companies to make sure the mining operations are not disturbed. And the central government has to change some of the articles in the new law because that is also why there is no investment coming. The new laws are not reflecting the guarantee of the long term investment.

BOURKE: Peter Fanning is the Chairman of the International Business Chamber in Jakarta.

He says there's a heavy cloud of caution hanging over investment opportunities in Indonesia.

FANNING: Foreign investors have a mixed reaction to the climate at the moment. Generally everybody has a lot of hope and optimism, in relation to the intentions and influence of the current government. From there what they are concerned about is whether that ionterest and good intention flows through to the bureacracy, which it clearly doesn't.

BOURKE: According to Mr Fanning that optimism will be sabotaged by draft legislation aimed at watering down long-term mining contracts.

He says the comfort of traditional long-term contracts that cover conditions and tax arrangements, have been crucial to the success and profitability of mining developments.

And he says the proposed laws will do the opposite of what the Indonesian government has been trying to do - encourge western investment and boost economic growth.

FANNING: What the new law, the proposed new law is doing is ignoring the value of mining by contract and simply depending on mining by concession. And that's successive concession, not continous. In other words, you may get a concession to explore and then yuo may get a concession to exploit and then you may get a concession to export and transport. The degree of comfort from those contracts is missing from these new laws and that has the danger of absolutely destroying the backbone of Indonesia's income.
BOURKE: Do you think that will happen?

FANNING: There is no indication that it won't at this point. And so there is every likelihood that the mining industry will be destroyed.

BOURKE: Mining company Newmont, despite an attack on one of its sites and the closure of one of its exploration camps, is suprisingly upbeat about its prospects in Indonesia.

And Newmont's Noke Kiroyan is confident the government will implement a law that nurtures the industry.

NOKE: I would say the government is very much concerned about investment, the government is trying to get as much investment as possbile into the country The mining industry will certainly look at Indonesia again because Indonesia is geologically interesting if the mining law is also attractive and attractive means that there will be contracts in the future.