Mines and Communities: Indonesia sends mixed messages to miners Page 1 of 4

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Indonesia sends mixed
Women messages to miners
Published Date: 19-01-2009
Workers Source Date: 15-01-2009

China Indonesia's parliament passed a long-awaited mining

law in mid December which both adds - and removes -
Money obstacles for foreign investors.

Law

Small Scale
Mining Indonesian Mining Law Adds Obstacles for Foreign
Investors
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by Tom Wright, Wall Street Journal

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17th December 2008

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Whats New JAKARTA -- A new Indonesian mining law aimed at
taking more local control of the country's resources will
Donate go into effect as commodities prices are tumbling, a
combination likely to deter foreign investment and
New Users hamper the industry.

The measure was passed by the parliament Tuesday

after years of wrangling between the central
government and provincial politicians over who should
control the nation's abundant resources of coal, gold,
nickel and copper.

In the meantime, nations including Brazil and Australia

cashed in on a global commodities boom that has now
fizzled.

The timing of the law's passage couldn't be worse for

would-be investors. Prices for key commodities are
falling sharply: the price for nickel, of which Indonesia
is a major producer, is off 60% so far this year.

"It will be a very tough year for Indonesian mining

after this law," said Priyo Pribadi Soemarno, executive
director of the Indonesia Mining Association.

The new law, which takes effect within three months,

gives greater power to local governments and requires
mine operators to process raw materials locally.

http://www.minesandcommunities.org/article.php?a=9020 9/10/2009
Mines and Communities: Indonesia sends mixed messages to miners Page 2 of 4

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© Mines and
Under authoritarian former president Suharto, who Communities 2008.
Web site by Zippy Info
ruled from 1967 to 1998, the central government
offered long-term contracts to foreign miners, spurring
huge investments from U.S. companies, including
Freeport-McMoRan Copper & Gold Inc. and Newmont
Mining Corp.

Since Mr. Suharto lost power, however, Indonesia's

provincial and local governments have pushed to take
more control of natural resources in their regions.
Foreign investors have made no major mining
investments in Indonesia in the past decade because of
the regulatory limbo.

The new mining law scraps the Suharto-era contract

system in favor of locally issued mining licenses,
underscoring the growing power of provincial
authorities. Under the new system, local authorities
will give companies five-year exploration licenses that
can later be turned in to full mining-development
agreements.

But big foreign miners like Rio Tinto and BHP Billiton
are unlikely to proceed with projects until they can get
assurances of longer-term licenses backed by the
central government, industry analysts said.

The law grants the central government the right to

issue long-term mining licenses for vaguely defined
"strategic areas." This provision is seen by analysts as
an attempt to assuage investors' fears of having to
deal exclusively with inexperienced local governments.

"For small-scale projects, the new law's probably not

that bad," said Sacha Winzenried, a mining analyst at
PricewaterhouseCoopers in Jakarta. "But for big mining
projects like the Rio Tinto one...it's going to be hard to
attract that kind of investment."
Rio Tinto is planning to invest up to $2 billion in a
46,000-tons-a-year nickel mine on Sulawesi island,
and remains committed to the project, said Omar
Anwar, president of Rio Tinto Indonesia. But the
company, which has been locked in talks with
Indonesian authorities since 2005, is watching closely
to see whether, in practice, the new law allows central
government involvement, he added.

A spokeswoman for BHP Billiton, which is hoping to

develop a major coal mine in Kalimantan province, on
the Indonesian side of Borneo island, declined to
comment on the new law.

http://www.minesandcommunities.org/article.php?a=9020 9/10/2009
Mines and Communities: Indonesia sends mixed messages to miners Page 3 of 4

The new legislation also stipulates that mining

companies have to have raw minerals processed locally
or set up smelters on their sites to do so within five
years.

The idea is for Indonesia to earn more by processing

its metals and minerals at home rather than sending
raw commodities overseas.

But few investors want to invest millions of dollars in

local smelters unless they get assurances of long-term
contracts, said Mr. Winzenried.

Write to Tom Wright at tom.wright@wsj.com

Indonesia passes new mining law

AFP

17th December 2008

JAKARTA - Indonesia's parliament passed a long-

awaited mining law on Tuesday designed to boost
government revenues and remove obstacles to foreign
investment.

The law was passed at a plenary session after more

than three years of deliberations by a special
committee tasked with overhauling the legislative
framework covering mining in the resource-rich
country.

Lawmaker Sonny Keraf, who headed the working

committee that designed the bill, said it would
encourage business by removing legal uncertainty
while boosting the revenues and powers of provincial
governments.

"It gives a chance for people to do business and gives

leeway for provincial administrations to enforce
provincial autonomy," he said.

But the Indonesian Mining Association has criticised the

law, saying it will deter investment rather than help to
unlock the country's under-exploited mineral wealth.

Association executive director Priyo Pribadi Soemarno

told Dow Jones Newswires ahead of the plenary session
the new rules weakened security for large-scale
investments and could push big industry players away

http://www.minesandcommunities.org/article.php?a=9020 9/10/2009
Mines and Communities: Indonesia sends mixed messages to miners Page 4 of 4

to countries with more conducive investment climates.

"This mining law (shows the government) is not

learning from the current situation, with the global
crisis," he said.

"This decision says 'no more investment, we don't need

more investment.'"

Countries with freer investment regimes such as

Malaysia and the Philippines could continue to attract
mining investment while Indonesia languished,
Soemarno said.

The new law installs a licensing system for most mining

investments in place of the previous contract system
which large investors saw as more secure and simple,
he said.

Companies would have to acquire a mining licence

from local governments, and new permits would be
needed for each stage of the mine from exploration to
production.

Under the Contract of Work system all these steps

were merged into a single contract with the central
government.

http://www.minesandcommunities.org/article.php?a=9020 9/10/2009