Indonesia Update

Indonesia Update

8th June 2006

Mining group objects to new forest guidelines

The Jakarta Post, Jakarta

31st May 2006

The debate over whether to protect the country's forests or promote investment in the mining sector has reemerged, with mining firms now up in arms over Forestry Ministry guidelines that they claim are hampering their operations.

Association of Indonesian Coal Producers chairman Jeffrey Mulyono said the guidelines -- issued through Forestry Minister Regulation No. 14/2006 -- only caused unnecessary problems for mining firms, and could deter future investment in the sector.

Jeffrey, who also chairs the Indonesian Mining Association, slammed the requirement that a mining firm intending to operate in a forest would have to provide a "compensatory site" twice as large as the mining concession they intended to lease. Those failing to comply with the requirement within two years would be subject to an additional royalty of 1 percent of production value.

It is this additional royalty that the mining firms particularly object to, with an executive of coal miner PT Interex Sacra Raya, Frans Nongka, saying it could amount to "thousands of times the land and building taxes imposed by the Finance Ministry, and the annual royalties that mining firms have to pay to the Energy and Mineral Resources Ministry."

Central Kalimantan Governor Teras Narang agreed with the mining firms, arguing that the regulation would only add to the cost and risk of investing in the mining sector, which many regions depended on for their development. "The regions are currently trying to pay for their own development by strengthening local revenues from business and investment. Thus, all relevant regulations need to support these efforts," he said.

Commenting on the dispute, the Energy and Mineral Resources Ministry's director general for mineral, coal and geothermal resources, Simon Felix Sembiring, said his ministry would soon discuss the matter with Forestry Minister M.S. Kaban. He said he hoped the talks would also make a distinction between production forests and protected forests that required stricter conservation guidelines.

The bitter controversy over whether mining should be allowed in the country's protected forests erupted in 2004 after the government issued Government Regulation in lieu of Law No. 1/2004, overruling the 1999 Forestry Law, which prohibited open-pit mining in protected forests. The regulation in lieu of law, which the government argued was necessary to provide legal certainty in respect of mining contracts signed before the 1999 Forestry Law was enacted, was later confirmed as the 2004 Forestry (Amendment) Law, thus allowing 13 mining firms to resume their operations within protected forests.

A challenge to the law brought by environmentalists was turned down by the Constitutional Court, although the court did ban six of the firms from operating in protected forests and ordered the rest to comply with the relevant Forestry Ministry regulations.

Indonesia's forestry and environment ministries face a tough task in conserving the country's remaining 40 million hectares of forest, the world's third largest forest area, with 2.6 million hectares being deforested each year, mostly as the result of illegal logging.