T

here is nothing completely new within the latest government regulation (PP No. 24/2012) that requires foreign mining companies to divest their controlling stakes in Indonesian mining ventures to national interests after their 10th year of commercial production.

Nor did the ruling come as a painful surprise to foreign mining companies, because President Susilo Bambang Yudhoyono issued that regulation on Feb. 21 to implement the 2009 Mining Law, which among other things stipulates general guidelines for that mandatory divestment.

Nor did the regulation reflect policy inconsistency because several foreign companies had made such divestments, though through legal and political turbulence. BP and Rio Tinto suddenly sold their entire stake in PT Kaltim Prima Coal, one of the country’s largest coal mines, to PT Bumi Resources, a private company, owned partly by politician/businessman Aburizal Bakrie in 2003 after a few months of legal tangles.

Last year, the foreign shareholders of the Newmont gold mine in West Nusa Tenggara completed their compulsory divestment by selling the majority of shares to the central government, local administrations and private national interests.

What was mind-boggling, though, is the complete sloppiness in which the government enacted such important regulations governing such an important sector as the mining industry, which contributes more than 17 percent of our gross domestic product.

The President had issued a similar regulation in February 2010 (PP No.23/2010) to implement the 2009 Mining Law, which also stipulates, among other things, general guidelines for divestment by foreign mining investors.

But, alas, Article 97 of this regulation (PP No. 23/2010) stipulates only that foreign shareholders in mining companies are required to divest at least 20 percent of their shareholding after five years of commercial production. It does not mention anything about mandatory divestment of a controlling stake, even though foreign investors have assumed that such corporate action is inevitable in the long term.

Hence, the latest regulation (PP 24/2012), which was announced to the media on Wednesday, was issued to amend the previous one (PP No. 23/2010). It is this uncertainty that we think upsets mining investors especially because they require clear-cut rules and long-term policy direction as mining ventures are highly risky, capital- and technologically-intensive in nature and have long pay-back periods.

The timing of the enactment of the new regulation seems to make things even murkier and heightens uncertainty as, over the last few months, the government has been strong-arming foreign miners over contract re-negotiations to adjust some of their contractual terms to the 2009 Mining Law and submit concrete business plans to build processing plants or smelters as they can no longer export unprocessed minerals after 2014.

The manner in which policies in the mining sector have been pronounced over the last few months seemed to reflect an arrogance. The government may think that foreign investors would stay put despite the harsher terms, given the profit windfalls they have been enjoying amid the commodity boom.

True, Indonesia is rich in reserves of gold, copper, tin, coal, and several other minerals. But our country is not the only one with such natural resource endowments.

Big risks are already inherent within the mining sector without legal uncertainty and policy inconsistency.

The government did make it clear that the new regulations will apply only to new mining investments licensed after the enactment of the regulation and those applying for license extension. That is comforting to know.

But surely, the manner in which the government devised its regulations would scare off potential investors.