RELATED ARTICLES |
The rule, attached to a mining law passed last year, presents an immediate challenge for Darwin Saleh, the new energy and mining minister, who was sworn in last month amid hopes that a new government could lift the resources sector.
The mining law, which replaced one issued 41 years ago, aims to squeeze more benefits from rich mineral reserves in Indonesia, the world’s top exporter of tin and thermal coal and a major producer of zinc, copper, nickel and gold.
But Indonesia has seen little new foreign investment in metal mining in recent years, and the energy and mining ministry’s new rule seems likely to dampen enthusiasm among potential investors.
‘‘It will increase costs for miners because they have to buy their own equipment and hire new people,’’ said Priyo Pribadi Soemarno of the Indonesian Mining Association.
To contain costs, most mining companies in Indonesia, particularly coal companies, rely on contractors for work ranging from the actual mining to the stockpiling of minerals.
But the new regulation limits contractors to stripping away topsoil and transporting mining products, while the miner itself has to extract minerals.
The rule encourages inefficiency and is out of step with global trends, said Mr. Soemarno, the executive director of the mining group.
‘‘Mining companies globally are trying to slim down their organizations,’’ he said.
The former mining and energy minister, Purnomo Yusgiantoro, signed the new regulation at the end of September.
His successor, a surprise pick in President Susilo Bambang Yudhoyono’s cabinet last month, has not publicly commented on it, and little is known of his policy stance.
Indonesia has struggled to lure foreign investment into mining in recent years, compounded by some politicians’ taking a nationalist line on resource extraction and by uncertainty over regulations.
Major global resource companies operating in Indonesia include Freeport- McMoRan Copper & Gold and Newmont Mining, but much of the investment was made decades ago.
Investment in mining, including coal and geothermal, rose to $1.65 billion in 2008 from $1 billion in 2004 but came mostly from existing miners rather than new entrants.
Some foreign companies have already shelved investment plans since last year, partly due to uncertainties over the new mining law, which also includes contentious items like shorterterm mining permits rather than longer-term contracts of work.
Miners will also have to process minerals in Indonesia and to set aside some of their coal for the domestic market.
The new mining services rule limits miners’ use of contractors. When they are allowed to use one, they must give a local contractor first preference, and they need the mining and energy ministry’s permission to hire affiliates.
David Kiu, an analyst at Eurasia Group, said the rule was aimed mainly at curtailing transfer pricing, a practice rife in Indonesian mining, by which companies in the same group sell to each other at artificial prices to avoid taxes.
The regulation applies immediately to new mining projects but allows existing miners a period of three years to adjust.
The regulation will have a bigger effect on coal producers, since they tend to use mining contractors for nearly all of their mining activities, some experts said.
Adaro Energy and Berau Coal, two large coal miners, outsource all of their mining activities.
Sacha Winzenried, a mining partner at PricewaterhouseCoopers Indonesia, said coal companies would have to do more themselves.
‘‘This will result in increased expenditures on capital equipment,’’ Mr. Winzenried said.
Miners whose affiliates carry out mining activities may need to restructure their businesses after the end of the exemption period, he added.
Companies are still assessing the cost effects.
The Indonesian Mining Association fears mining investment could fall below $1 billion this year due to uncertainty over the new law, although the government has said investment from mining, including geothermal, could surpass $2 billion.
Post new comment