Indonesia To Honour Mining Contracts

Indonesia to honour mining contracts

By Shawn Donnan, FT.com

March 12 2004

Indonesia has cleared the way for the legal resumption of open-pit mining in the archipelago's protected tropical forests, removing what the mining industry had dubbed a big hindrance to badly needed investment.

Mining in protected forests - those that receive a legal level of protection one level down from national parks and conservation areas - was outlawed by a 1999 forestry law. But in what critics saw as a legislative blunder, the law did not exempt more than 150 mining concessions in, or spilling into, protected forests where contracts were already in place.

That exposed Indonesia to the possibility of being sued for breach of contract and left the operations of local and international mining companies in legal limbo.

It also served as a much-cited example of the kind of inconsistent treatment foreign investors say they often receive in Indonesia. While the country's economic ministers sought to woo investment in the country's resources sector, forestry officials fought against honouring the mining concessions in protected forests.

In a long-awaited move, President Megawati Sukarnoputri and her cabinet on Thursday issued an administrative order allowing companies with contracts in place before 1999 to go ahead with their work.

"We are giving a signal to the mining investors that we are doing the best we can to create a conducive climate," said Purnomo Yusgiantoro, Indonesia's mining and energy minister. The ruling, he said, would in the short-term apply only to 13 companies with operations already in place and a maximum of nine others with exploration contracts.

The minister said he hoped the decision would boost confidence in Indonesia and help turn round a protracted downturn in government mining revenues. According to the government, mining revenues fell to Rp1,070bn ($124m, £69m, €101m) last year, the sixth straight annual fall.

Environmentalists blamed the cabinet's decision on foreign intervention. "The government is undermining and violating its own law. It is legalising deeper forest destruction," said Longgena Ginting, executive director of environmental group Walhi. But Paul Coutrier, executive director of the Indonesian Mining Association, said it would free up some $2.5bn (£1.39bn, €2.04bn) in mining investment, by doing the equivalent of inserting a "transition clause" in the forestry law allowing existing contracts to be respected. Additional reporting by Taufan Hidayat.