Indonesian Mining Law
Indonesia has some of the world’s greatest source of natural resources like coal, copper, gold, nickel, and tin. With the new Indonesian mining law, the country now has greater control over its resources; this is one of the most mineral rich nations in the world. The new laws will limit the areas of exploration in some cases, a move seen by many that is intended to benefit small and medium sized firms. One of the biggest changes is that it now requires companies to seek separate permits for each phase of mining activity. This can range from seismic surveying and exploration, to feasibility studies and construction. This is pretty much the polar opposite of the previous systems one way contracts.
Every aspect of the new mineral and law has been deeply discussed with local governments, private companies, public companies, etc. However, analysts warn that it could very well deter investment by multinational corporations. What it has effectively done is eliminate the differences in treatment of foreign and domestic investors, by stating that both will be equally eligible to receive either a mining operation permit or mining operation permit. This new system eliminates the old contract law that provided special incentives and guarantees to foreign investors only. Some experts say that it may not go far enough to remove some of the legal inconsistencies and uncertainties that is now bedeviling investors.
The new Indonesian mining law requires that existing contract holders submit a comprehensive plan for the entire working area, or else they may lose part of their designated mining area under a new capping provision. Basically, it stipulates that existing contract holders must submit activity plans for their entire mining area that’s allocated to them within a year. If, for some reason, they fail to do this, the area designated to them will be adjusted. The company is also required to report if they think they will not be able to conduct operations in the whole area. This is so the area management can be returned to either local or central government control.
One of major problems people have with this law is that it requires investors to process all mining products into metal locally. Whether this is by setting up their own smelters or outsourcing this process, it’s something that will sharply increase operating costs. Companies may also need to purchase mining equipment domestically, which of course will lead to higher cash outflows and maintenance costs, even though they may be able to lease some equipment. The preferential treatment miners must give to Indonesian contracts increases the administrative burden and makes things more complicated because of the selection process. All in all, the law was designed to keep business in the country to generate more revenue.
