Association leaders criticize new mining law

The new mining law which was recently passed by the House of Representatives has a lot of provisions that are unfriendly to investors and will thus will make the country?s mining sector unattractive to investors, two mining association leaders have said.

Jeffrey Mulyono, chairman of the Indonesian Coal Mining Association (ICMA or APBI) and Arif S. Siregar, chairman of the Indonesian Mining Association (IMA), said in a conference on the law on Monday that the Law on Mineral and Coal Mining would discourage new investment in Indonesia and had left a lot of questions that need to be answered and clarified.

The seminar was organized by Petromindo.com.

?Big multinational mining companies will think twice for investing,? Jeffrey said in his presentation.

Big companies are concerned that the law replaces the contract of work (CoW) system with a license system despite the fact that the former has proved effective in providing security to their investment. They are also concerned over the provisions of the law on divestment obligation, smaller size of mining areas and shorter production period, according to Jeffrey.

Small and mid-sized domestic investors will also be cautious in making investment decision due to the prohibition on ore exports and the obligation to process or refiner their mineral ore in Indonesia. It needs a huge amount of money to develop mineral processing and smelter facilities, Jeffrey noted.

On the positive side, he said, the new law treats foreign and domestic investors equal in the sense that both of them can apply any type of mining licenses. Under the old Mining Law No. 11/1967, foreign investors can only apply one type of mining contract, that is CoW.

Jeffrey also praised the provision of the law which stipulates a mining license should be issued through a tender process, rather than through direct appointment. This system is more transparent than the old one, he said.

He also praised the hard punishment meted out by the law for illegal miners and officials who abused their authority in issuing licenses.

Manwhile, Arif criticized the law for ?leaving many questions that need to be answered and clarified?.

He for instance, pointed out the article stating the CoWs will remain effective until their expiry. On the other hand, another article states the CoWS shall adjusted to the law at the latest one year after the enactment of the law.

Regarding the provision that obliges mining companies to submit 10 percent of their net revenue to the central and regional governments, Arif said IMA had asked a consultant to review the obligation and make comparisons with the financial obligation applied in other countries.

Arif also criticized the law?s provision on the size limits of exploration and production areas, saying ?Essentially, a larger exploration areas is better for the government because the data will be owned by the government.? The law limits that size of exploration area to 100,000 hectares (ha) and production area to 25,000 ha.

The law also gives mining companies 20 years for production and this production period license can be extended twice, each for 10 years. ?Why 20 years? Is there any relevant study as a basis to determine the figure? How about the existing CoWs??

Arif also questions what will happen if a CoW expires and the holder wants to extend the contract. Will the contract extension be changed into a license system?

With regards the provision that obliges the existing companies to build smelter or processing facilities to process their products within five years after the promulgation of the law, Arif asked: ?What is the consequence if after five years, a mining license holder cannot meet the requirement and there is none else capable to process the products? Why not leave it up to the market??. (Bodega)