Indonesia plans to limit mining areas
Indonesia plans to limit the area that metal and coal miners can explore to prevent domination by a few companies, a legislator said on Monday, a move analysts said could hurt already poor levels of investment.
Indonesia has some of the world’s largest deposits of coal, copper, tin, nickel and gold, and is keen to earn more from the sector, particularly as strong demand from China and India is driving prices for many commodities up to record levels.
But the sector has been struggling to attract foreign money as legal uncertainty, rampant graft and red-tape have steered foreign investors away from Indonesia.
A draft bill limiting the exploration area is expected to be passed by August, said Airlangga Hartarto, chairman of a parliamentary commission in charge of energy and mining issues, said. He said there are currently no such limits.
Indonesia plans to limit exploration and exploitation areas for metal mining, which include tin, copper and gold, to 100,000 hectares and 25,000 ha per firm respectively, he said.
It would also limit exploration and exploitation areas for coal mining to 50,000 ha and 15,000 ha per firm respectively.
“This is aimed at preventing mining firms from controlling large areas. The current system has allowed firms to have mining areas above 100,000 hectares,” Hartarto told reporters.
He added the limits will not affect existing contracts.
Mining analyst Yusuf Ade Winoto of brokerage DBS Vickers Indonesia said the move could hurt investment in the long run, but the limitations would help the government protect the environment.
“In general, it may hurt foreign investment in the sector,” Winoto said.
He said however that the move is unlikely over the short term to hurt big mining companies already operating in Indonesia as the limitation will not affect their existing contracts.
The mining industry grew by just 2.2 percent in 2006, Indonesian government data shows, much slower than overall economic growth of 5.5 percent due to the absence of major investment in the past years.
WAITING IN THE WINGS
Investment by foreign and domestic firms in Indonesia’s mining sector averaged just $800 million a year between 2000 and 2005, and is set to reach only $1.5 billion this year, partly because of uncertainty over a new mining law.
Some of the world’s top mining firms such as Freeport-McMoran Copper&Gold and International Nickel Indonesia have operations in the country.
But the Indonesian Mining Association said $8 billion to $11 billion worth of mining projects were waiting in the wings.
International mining firms, including Rio Tinto Ltd/Plc and BHP Billiton , could potentially invest billions of dollars in new projects in Indonesia.
Rio Tinto is waiting to start a nickel project on Sulawesi island that has been valued at as much as $2 billion, and which could produce 46,000 tonnes of low concentrate nickel per year.
Indonesia’s state-controlled PT Aneka Tambang and its Russian partner United Company RUSAL are waiting to proceed with a bauxite and alumina project at West Kalimantan, with construction of the plant scheduled for 2009.
The project is valued at $1.4 billion but could require investment of as much as $4 billion if infrastructure such as a smelter and power plant are included.
Despite a global price boom for most commodities that has prompted a fresh flurry of investment and mega-mergers, uncertainty over the new mining law has hampered the development of the country’s rich coal, copper, gold, tin and nickel deposits, a key driver of economic growth.
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