Mining association predicts investments continue to fall in 2003

Investment in Indonesia's mining industry may continue to fall in 2003 as investors crimp spending amid concern about the country's political and economic stability and possible changes to mining laws, Bloomberg reported Tuesday.

Indonesia, which has the world's largest single gold deposit at Freeport-McMoRan Copper & Gold Inc.'s Grasberg mine, may exhaust reserves by 2008 without exploration to find new deposits, said Paul Louis Coutrier, executive director of the Indonesian Mining Association.

``Now prospective investors go to other countries, and those who are already here are halting expansion,'' Coutrier said. ``Investment will continue to fall this year.

There has been no new exploration in Indonesia in the past four years. The country's mineral reserves are depleting because production by existing companies is high, Coutrier said. In 2001, the mining industry accounted for 11 percent, or the third-biggest component, of the Southeast Asian country's economy.

In 2001, investment in the mining industry, including spending to buy equipment and develop new mines, fell 42 percent to $1.43 billion, Coutrier said, citing a survey released by PricewaterhouseCoopers in November. Investment may fall another 15 percent in 2002, the report said.

The drop in spending may reduce production of coal, gold, copper, nickel and tin in Indonesia, slowing economic growth. At least seven mining companies will shut their operations in the next five years because of depleting reserves, Coutrier said.

The association, known as IMA, represents foreign and local investors in the country. Members include state-owned PT Aneka Tambang, PT Kaltim Prima Coal and Indonesian units of Rio Tinto Group, Freeport-McMoRan and BHP Billiton.

Illegal Miners

Indonesia needs to resolve issues on overlapping laws and regulations and uphold law enforcement against illegal miners if it wants to attract new investment, association Chairman B.N. Wahju said.

The country passed a regional autonomy law in 2000 that gives greater control over mineral resources to provinces and is in conflict with current mining laws giving the central government authority over the industry.

The government drafted a new mining law and has been waiting for more than a year for parliament's approval.

In 1998, Indonesia's President Suharto was ousted after riots broke out as the country sank into its deepest recession. His ouster after 32 years in power led to changes in laws and administration, raising concern among investors that taxes may rise, cutting profits.

Illegal mining activities are also rampant in Indonesia as the economic crisis forces people to look for lucrative sources of income. The coal- and tin-mining industries are among the worst hit by the illegal miners.(*)