Indonesia update

Indonesia update

23rd February 2007

Miners in Forest Areas to be Required to Pay Up-Front Compensation

The Jakarta Post

23rd February 2007

In the latest effort to improve protection of the country's rain forests, the government will require mining firms operating in both plantation and protected forests to make an up-front compensation payment for the destruction of forest cover and to cover any environmental damage their activities might cause.

It will also revoke a mining company's lease -- which is renewable every five years-- and rehabilitate the area if the firm is found to have abandoned the site, Forestry Minister M.S. Kaban said after a Thursday meeting on the issue with Vice President Jusuf Kalla, Energy and Mineral Resources Minister Purnomo Yusgiantoro, and Investment Coordinating Board (BKPM) chairman M. Lutfi.

The new policy comes against the backdrop of the House of Representative's deliberations of the draft mining law, and the upcoming signing of a new investment deal worth US$1.2 billion in Pomala, South Sulawesi, with Anglo-Australian mining giant Rio Tinto.

It may also be seen as a compromise between the divergent interests of the Energy and Mineral Resources Ministry -- which wants to encourage more mining -- and the Forestry Ministry and State Ministry for the Environment -- both of which are concerned with protecting Indonesia's forests.

"I think this is a step forward. We've all agreed that those involved in mining in forest areas will have to take conservation and environmental aspects into consideration. Previously there was no mechanism requiring them to pay for this," Kaban said.

Further explaining the new policy, which will be put into effect through a regulation of the forestry minister issued in line with the proposed new mining law, Kaban said the amount of the forest compensation payment would be assessed on a case-by-case basis depending on how much forest was destroyed by each mining operation.

Those operating in protected areas will be required to pay more than those mining in forestry plantations, he said. Finance Minister Sri Mulyani Indrawati had earlier proposed that the compensation payments be treated as local taxes for accounting purposes. Kaban declined to say how much the compensation payments might amount to.

Purnomo said that assessments would be conducted by an inter-ministerial team under the coordination of the Vice President and senior government officials so as to avoid conflicts of interest. Last year, the Forestry Ministry issued a regulation requiring every mining firm that wishes to operate in forest areas to provide compensatory land amounting to twice the area of the site on which it proposed to establish its mine.

Those failing to comply with the requirement within a period of two years are required to pay a penalty amounting to 1 percent of their production values. Mining firms and associations objected to the regulation, arguing it would impose too much of a burden on top of the royalties they already had to pay.