The government has voiced optimism that the mining bill, currently being deliberated by the House of Representatives, will legal certainty for investors and as such improve the investment climate in the sector, which has been low for years.
The law will replace No. 11/1967 on mining, which is considered to be in conflict with the Autonomy Law and as such should be repealed. Under the 1967 Mining Law, the authority to manage mining companies lies with the central government, while following the enactment of the Autonomy Law, the central government transferred the management of mining resources to regional governments.
The 1967 Mining Law has been praised by foreign mining investors, particularly because it provides certainty for them to do business over the long term. This is because it requires the government to give a contract of work (CoW) to investors to invest in the country. The CoW has to be approved by the House and is as such considered equal to a law -- meaning it cannot be easily changed by the government. Taxes payable by investors are clearly spelled out in the contract and investors are free from the obligation to pay taxes introduced by the central or regional governments after their CoWs are signed.
It remains unclear if the new law will be able to provide equal investment security as that provided by the 1967 law. Some provisions in the proposed bill have received a negative response from investors.
The Ministry of Energy and Mineral Resources' director general of mineral, coal and geothermal resources, Simon F. Sembiring, said the House was expected to pass the bill in May after its recess.
The following are some of new provisions proposed in the mining bill:
-- Mining firms will be required to process their ore into metal in smelters located in the country. Currently, some mining companies process their ore in the country but others either send their ore to smelters outside the country or process their ore into concentrate in the country and then send the concentrate to smelters outside the country to be processed into metal.
According to the government, the new ruling aims to develop the smelting business in the country.
-- Investors will sign contracts with state-owned enterprises rather than with the government. Currently, foreign investors sign CoWs with the government. As far as the coal business is concerned, investors initially signed contracts with state-owned coal mining company PT Bukit Asam. In the middle of 1995, the government took over Bukit Asam's authority to manage the country's coal business and decided to sign coal contracts itself.
""We want to avoid contracts with the government. The authority will be given to state enterprises. So, negotiations will be business-to-business between state enterprises and investors,"" Simon said.
-- The government will offer mining concessions through tenders. At present, mining investors may apply for contracts over certain concession areas after carrying out a preliminary study on the area. The new ruling, according to Simon, aims to create transparency and fairness.
-- The law will cut down the number of permits that miners are required to have. Miners will only need to apply for two permits throughout their operation, that is, exploration and exploitation permits. Today, miners need to secure several permits throughout their operation, including permits for a feasibility study, exploration, construction, exploitation. -- JP
