Indonesia losing opportunity in mining sector: Executive

By: Alexander Ginting

Indonesia needs to reform its mining law to revive the declining investment in the sector and to give greater benefits to the community.

However, the draft process of the new law, which will replace the old Mining Law of 1967, has produced a bill, which will predictably cause more damage to the investment climate in the sector and by no means help position Indonesia within the top 5-10 mining investment jurisdiction in the world, Richard B. Ness, president director of Newmont Pacific Nusantara, said on Wednesday.

Recent surveys says, Indonesia, which was one of the top investment destinations for mining investors until several years ago, still ranks very high on mineral potentials but ranks 47 out of 50 countries surveyed in terms of policy and policy implementation.

?The world is progressing and moving forward with each passing year, while Indonesian mining reform is at best standing still with the potential take further step backward.

?This is opportunity lost,? Ness said in Jakarta during the Indonesian Mining Association (IMA) Mining Conference.

Ness said the new mining bill, which has been drafted by the government, does not take into consideration the benefits of modern development practices, gives little consideration to encouraging the multiplier benefits to communities, trade policy, infrastructure development and the nation?s economy as a whole.

?Nor does it fully address resource utilization, conservation measures, environmental concerns and a process for continual improvement of best mining practices.

?Thus even if mineral resources are developed, it is doubtful under the current draft that maximum benefit will be derived by the people from the investment. The current draft does not encourage profits made from the resource extraction be retained and re-invested in the country,? he said.

Ness thus called on the government and the House of Representatives to work together with all stakeholders in the industry to review the draft law and make a regulatory system, which is among the best in the world.

With its abundant natural resources and a good regulatory system, Indonesia has the best chance to draw a large number of foreign investors into the country to help spur economic growth, create employment opportunities and generate more revenue for the government to improve education, health and reduce poverty, Ness said.

Ness said one of the main points that Indonesia needs take into consideration in drafting the new law pertains to fiscal policy.

He said the current fiscal regime in Indonesia is not competitive compared with other mineral producing nations.

According to him, the overall ?effective tax rate? on existing contracts is in excess of 60 percent and could be significantly higher if current general tax and non-tax (e.g. royalty) provisions were applied.

?The fiscal policy relating to mining needs to be reviewed in detail with the objective to create an ?overall effective tax rate? of between 36-45 percent, bringing Indonesia in lieu with the more progressive nations to promote resource development,? he said.

He also said many governmental investment and trade policies actually encourage or even mandate that upstream and downstream supplies/services provided to mining companies take place off shore, sending a large portion of the benefits of natural resource development in Indonesia to other countries.

These policies should be reviewed to allow ?Indonesia to capture many of the benefits and revenue that currently flow off shore other tax jurisdictions,? he said.

Ness further said the current decentralization process could also be detrimental to mining investment as the local governments could make rulings that are in conflict with those made by the central government.

As such, Indonesia needs to clearly define the roles and responsibility in mineral policy at all levels of government.

He recommended that the central government be a repository for geological information and mining lease (concession area) database and be responsible for the regulation of mine health and safety; the general licensing; and fiscal and revenue distribution policy.

Meanwhile, the provinces should be responsible for the registration of mine lease areas and the application of general provincial rules and regulations that are not specific to mining. The central government should be responsible for the regional planning of mine lease (concession) areas, and the application of general rules and regulations that are non-specific to mining.

He also recommended that companies be allowed to consolidate and operate in Indonesia in line with global trends.

?In order to do so, a company must be registered and approved as a ?licensed mining company? or ?licensed mining contractor to the Indonesian Government?? Once the license to operate as a mining company has been granted, only reporting and legal compliance should be required,? he said.