Jawa-Bali mining sector open for foreign investors

The government has given an opportunity to foreign investors to conduct mining activities in the densely-populated Java and Bali islands after the areas were closed for mining activities for a while, according to the director general of general mining at the Ministry of Energy and Mineral Resources, Surna Tjahja Djajadiningrat.

Surna said that the contracts of works (COW) of the eighth generation opened Java and Bali for foreign mining investment after in the COW of the previous generation, the seventh generation, the islands were closed for mining activities.

The government opened the islands for mining activities by foreign investors, only as a sweetener to attract as many foreign investors as possible to the country, Surna said.

"Although foreign investors are given an opportunity to do mining on Java and Bali, but the government has set very tight rules (on mining activities on the two islands)," he said.

For example, foreign investors are required to protect the environment surrounding their mining areas on Java and Bali. "Besides, prospective investors must have complete data about the areas they want to exploit and must secure a principle license from the authority."

Because of these tough requirements, plus the limited areas on the islands and the expensive land acquisition cost, Surna said that investors were unlikely willing to invest on the islands. "Privately, I'm pessimistic that this policy will be attractive for foreign investors, because of those many considerations."

Besides opening Java and Bali for foreign mining activities, the eight-generation COW does not follow a fixed tax system like those in the previous generations, but follow the prevailing tax regulations.

Such prevailing tax rules also apply to mining companies operating under coal mining licenses (PKP2B) of the fourth and next generation.

With this policy, the taxes applied to contractors equipped eighth generation COW or fourth generation PKP2B would follow the prevailing tax regulations set by the government. So, the taxes that they have to pay will not be nailed down anymore, like that of the previous generations.

"So, the tax regime can change, depending on the government's policy. If the tax rates drop, it will benefit companies, but if the rates rise, it does not mean that companies will lose," Surna said.

He explained, however, that the COW of the eighth generation would not be signed until the new mining bill was passed into law by the House of Representatives.

In addition, Surna said, the authority to license mining activities would be transferred to local administrations, and this would await the issuance of a presidential decree and a home affairs ministerial decree. Currently, 214 districts out of 365 districts in Indonesia are ready to assume local autonomy authorities in mining activities. (*)