Indonesian investment chief backs massive BHP nickel project

A nickel mining partnership between BHP Billiton and an Indonesian firm in a protected island paradise has "strategic" importance and should proceed, Indonesia's investment chief said Wednesday.

Investment coordinating board head Muhammad Lufti said the 50-50 joint venture involved investments of around four billion dollars including a mine on environmentally sensitive Gag Island off the western tip of Papua.

"We will do it responsibly and my board will do whatever it can to make sure that (the joint venture) materialises," Lufti told reporters.

"I understand that Gag Island is environmentally sensitive and that's why we have to think about developing the smelting and refining not on Gag Island but on the Halmahera side," he said, referring to a large island in nearby North Maluka province.

Anglo-Australian giant BHP and joint venture partner Antam announced the plans earlier this month but have remained tight-lipped on details, saying the deal had yet to receive board approvals. But a BHP spokeswoman in Melbourne confirmed the plan related to Gag Island, one of the most biodiverse regions in the world according to the UN science and education agency UNESCO.

The island is also home to a rich nickel deposit that BHP has been interested in exploiting for a number of years.

Strong Chinese demand for nickel, the base metal in stainless steel, has led analysts to predict prices to average 8.54 dollars per pound in the next 10 years, from an average of 3.04 dollars from 2002 to 2003.

But environmentalists have condemned the plan for large-scale mining on Gag Island, saying it threatens marine life in a proposed UNESCO heritage area around the Raja Ampat island group. The Raja Ampat islands' formal listing as a world heritage site has been stalled by Jakarta's refusal to designate them as a national park.

Lufti said he was ready for a backlash but argued the economic interests to the impoverished region far outweighed the potential damage to the ecosystem.

"We will do it responsibly ... but this is strategic for Indonesia and strategic for the people in Maluku and certainly for the people in West Papua as well, in order to get some kind of downstream industry creating jobs," he said.

Gag Island's forests are technically protected but the government relaxed the rules in 2004 to allow certain firms to mine there. The BHP-Antam joint venture would be the first to take advantage of the new policy.

The removal of the restrictions came amid reports that BHP, backed by the Australian government, was pressuring Jakarta to approve the island's exploitation. BHP denies the allegations.

Lufti said the conservative government of former Australian prime minister John Howard, who was ousted in November elections, had been "quite active" in arranging meetings between the parties in Indonesia.

Jakarta has been desperate to boost foreign direct investment, particularly in the mining sector where companies have complained of confusing regulations and red tape.