FOCUS: Mining industry anxiously anticipating decentralization era

The country's mining industry is waiting for the decentralization era with anxiety as the government has thus far apparently failed to lay legal foundation to protect their interests during the era.

The industry, believing the regions are not yet prepared to take over the government's role of supervising, licensing and managing mining industry, has asked the government to delay the implementation of the decentralization program or gradually transfer its mining rights to the regions.

But, the government has thus far failed to send a clear signal that it is going to meet the industry's wish.

Under the Autonomy Law No. 22/1999, which the government has planned to implement on January 1, next year, the regions, that is the provinces, regencies or mayoralties, will license all mining operations in their respective territories.

But, mining executives questioned the ability of the regions to carry out the job, citing their lack of modern infrastructure.

"Some regencies have not yet had a single computer in their offices. How can we expect such regencies to be able to process licenses for mining investors " said Gerry Mbatemooy, vice president of Britain-based Billiton Indonesia, told Petromindo.Com.

Joe Ariti, chief operating officer of Australia-based Aurora Gold in Indonesia, questioned the bankability of the contracts signed by the head of the regions.

Mining executives have also voiced worries that the mining regions, which are mostly less developed compared to many places in the country, would take the opportunity to create regulations that allow them to collect a lot of taxes from mining investors, ignoring the fact that the policies would hurt the industry and investment climate in the areas.

President of publicly-listed state owned tin mining company PT Timah Erry Riyana Hardjapamekas, in a recent meeting with a commission at the House of Representatives, said the South Sumatra provincial administration had issued a gubernatorial decree obliging tin mining companies operating in the province to pay the province Rp 2,500 (US$1=9,423) per ton of tin in addition to its financial obligations set in its contract.

"We refuse paying the new tax because we think the ruling does not have a strong legal basis," Erry said.

Executive director of the Indonesian Mining Association (IMA) Paul Louis Coutrier, who joined the meeting between Timah and the House's commission, proposed that all contracts to be signed by the regions, require approval by the House so that the regions would not freely change the contracts.

Under the existing law, all mining contracts, which are popularly called contract of work (COW), have to be "consulted" with the House before being awarded to foreign mining investors. The COWs are thus categorized as lex specialis (special law), have strong legal power and can't be easily changed.

Minister of Energy and Mineral Resources Purnomo Yusgiantoro has tried to address the mining industry's concerns by issuing a decree this month, which seeks to protect mining investors from "irresponsible" policies of the regions.

The decree says during the decentralization era, the regional administrations will have to follow the standards set by the central government and the House of Representatives in managing their mining resources, including issuing licenses to investors

The ministerial decree states that the central government will set a standard contract for mining operations in consultation with the House and the regional administrations have to follow the standard contracts.

The decree further says regencies and mayoralties have to meet some requirements to exercise the mining rights transferred by the central government.

The regencies and mayoralties first have to officially notify the ministry of energy and mineral resources and the so-called "regional autonomy advisory body" that they are ready and capable to exercise the mining rights.

The ministry and the regional autonomy body will then evaluate whether the regencies and mayoralties are really ready and capable to exercise the rights.

In order to gain approval from the ministry and the body, the regencies and the mayoralties have to show that they already have bylaws governing the development of mineral resources which are not in conflict with the regulations and standards set by the central government.

The regencies and mayoralties have also to show that they already have capable organizations to regulate the mining industry, process licenses, supervise exploration, production activities, manage database and evaluate reports.

Purnomo initially planned to issue the decree on Nov. 6 but sources said the issuance of the decree was delayed for several days because some legislators opined that the decree contravened with the Mining Law No. 11/1967. The legislators said the government should first change the change the law before issuing the decree.

"The decree has been issued and actions to disseminate information about the decree is now in progress," Purnomo told Petromindo.Com over the weekend.

Some analysts say the issuance of the decree is basically an effort of the government to delay the transfer of mining rights to the regions, which is in conformity with mining investors' wishes.

Prior to the issuance of the decree, director general of mining Surna T. Djajadingrat repeatedly said the ministry was proposing a gradual transfer of the mining rights to the regions.

But, the regions insisted that the autonomy law should be implemented on Jan. 1, 2001 as scheduled and they would oppose any efforts to delay the decentralization program.

For instance, Governor of South Kalimantan Province Sjachriel Darham said if Jakarta delayed the decentralization program, South Kalimantan would move by its own to issue mining contracts to investors.

He said any plans to delay the implementation of the Autonomy Law should be considered as "illegal" because it contravened with the Autonomy Law, which stipulates that the law will come into force on Jan. 1, 2001.

"If they want to delay implementing the law, they have first to amend the Autonomy Law," Sjachriel said during a recent conference organized to PT Harvest International Indonesia.

Sjachriel dismissed the allegation that the regions lacked solid organization, regulations, and skilled human resources to manage the development of their natural resources.

As far as South Kalimantan was concerned, he said, the provincial administration had been drafting mining regulations governing licensing, transportation, and reclamation affairs.

The province has also a special office tasked with supervising mining operations.

He acknowledged that the province lacked staff knowledgeable about mining affairs, but he said the central government could solve the problem by sending skilled staff of the ministry to the province.

The ministry may have worked hard to make the decree, which could dismiss the worries of mining investors, but the current legal hierarchy could make the ministry's efforts useless.

Former staff expert of the ministry Andi Malarangeng recently told Petromindo that ministerial decrees would be powerless in the country's new legal hierarchy.

" The ministrial decree is no longer a source of law. If the ministry (of energy and mineral resources) wants to issue regulation, it should be in the form of presidential decree. Regional governments would not no longer be obliged to obey ministrial decree," Andi said. (Bodega)