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ndonesia is mulling a game-changing policy to prevent local administrations from issuing excess and overlapping mining permits by expanding the central government’s authority to grant concessions.

The Energy and Mineral Resources Ministry’s director general for minerals and coal, Thamrin Sihite, said on Monday that the plan called for permits only to be issued through a tender process.

“We’re basically adopting a similar mechanism that is applied in the oil and gas sector, in which blocks are openly offered by the government to prospective bidders,” Thamrin said. “We’re working to finish outlining mining zones that will be offered to potential investors by the end of this year.”

The rationale behind the policy stems from messy management of permits by local governments that has caused legal uncertainty for investors due to the overlap and to over-exploitation of natural resources.

While local administrations have sole authority to grant unlimited mining permits under existing law, more than half of 10,566 permits issued locally in the 10 years following regional decentralization have been deemed legally problematic or unaccountable.

The mismanagement has led British miner Churchill Mining to file US$2 billion arbitration claim against the government with the Washington-based International Center for Settlement of Investment Disputes last year on overlapping permits for its coal concessions in East Kalimantan.

The Canadian Fraser Institute has labelled Indonesia as “the worst” among 10 least-attractive countries for the mining industry in a recent survey.

Indonesia, the world’s largest exporter of thermal coal for power plants, nickel ore and tin, holds rich untapped mineral resources. US-based gold miner Freeport McMoran operates the world’s biggest integrated gold mine in Papua, with a planned expansion in sight.

Thamrin said that the government already had the legal basis to revise the permit system to improve the process and the investment climate, under the 2009 Mining Law.

The law specifies that the government can develop a map categorizing the nation’s mining areas into mining business zones (WUPs), mining areas specified for local communities (WPRs) and the state reserve zones.

After completing the map with assistance from local administrations, the government can seek its endorsement from the House of Representatives.

The WUPs could then be offered to companies through a bidding process that would grant winners the rights to exploit resources and receive permits from local administration. “We expect to start with the new system next year,” Thamrin said.

The ministry’s staff expert for the mining sector, Tabrani Alwi, said that the government would devise additional regulations to implement the bidding system.

“Local leaders will also have a role during the bidding process, such as providing recommendations,” Tabrani said, declining to elaborate.

Meanwhile, Indonesian Mining Association (IMA) deputy chairman Tony Wenas said that he was upbeat that the new plan would bring “healthy competition” to the industry.

“However, there is question over the government’s ability to provide accurate and sufficient data on coal and mineral reserves for the mining companies,” he said, adding that the government lacked the capacity to determine seismic data for oil and gas reserves, causing confusion for energy companies.

Tony said that he would prefer it if the central government took charge of the tender process and not the local administrations, even though the law also allowed them to manage the process.

Indonesian Mining Business Association (Apemindo) executive director Ladjiman Damanik said that he welcomed the plan, claiming that it was similar to a bidding process introduced for geothermal areas to investors last year.

Mining sector think-tank ReforMiner Institute deputy director Komaidi Notonegoro said that the government had to ensure transparency during the tender process to prevent “brokers” from taking advantage of concessions.