The 2014 Election Effect...... There seems to be an understanding that every time an election is coming the Indonesian Government makes it difficult for foreign mine investors. This tactic can help a person get elected in Indonesia. Unfortunately it weighs heavy on investors. This is something everyone has to live with. The last sentance in this article is probably what could happen. Hope not. The second article states that the laws of Indonesia are also digging a hole. I think it is all related. Looking for some good news from SA to level the playing field. Cheers.
https://www.thejakartaglobe.com/opinion/the-2014-election-effect-on-indonesias-mining-law/543750
The 2014 Election Effect on Indonesia's Mining Law
Bruce Gale - Straits Times | September 11, 2012
Indonesia's handling of the mining industry has come in for some trenchant criticism from foreign investors recently.
New regulations, say the mining companies, could sharply increase the cost of doing business. They are also designed, insist the critics, to benefit well-connected businessmen at the expense of the industry as a whole.
Meanwhile, British coal mining company Churchill Mining has caused a stir by taking its dispute with the East Kutai district administration in East Kalimantan to the International Center for Settlement of Investment Disputes in Washington DC.
Churchill accuses the local government of illegally withdrawing its mining licenses and seizing its assets without compensation. Similar complaints from other foreign mining firms are in the works.
So, what is going on?
"It's all about the 2014 elections," explained Bill Sullivan, a legal adviser to many large mining companies, when I met him at the Jakarta law offices of Christian Teo Purwono and Partners last month. Parliamentary elections are due in April 2014, while the first round of the presidential election is scheduled for July.
Indonesia has a history of coming down hard on foreign mining companies ahead of major elections. The last time was in 2009, when a new law sought to restrict a foreign mining company's ability to sub-contract work to foreign rather than local companies. It also introduced a divestiture requirement obliging foreign mining firms to sell at least 20 percent of the shares to a local company after five years of production.
Among the even tougher rules introduced this year is one that requires foreign companies to divest majority control of their mining projects within 10 years of starting production. Another imposes a 20 percent tax on exports of 65 unprocessed minerals and metals, including nickel, tin and gold.
The government says it wants to add value to the mining sector by forcing companies to process locally. But critics point out that no such requirement has been imposed on coal. Bumi Resources, by far the nation's largest coal exporter, is controlled by the influential Bakrie family.
Local processing of coal could improve its calorific content and thereby its value-added when sold on international markets. The problem is the heavily indebted Bakrie conglomerate would be unable to afford the investment.
Industry observers note that the rules on divestment could significantly reduce foreign investor interest. One concern is the price at which shares would be sold to Indonesian interests. The rules state that if a foreign mining company does not sell the shares to a local buyer within the stipulated period, then the government has the right to acquire them at cost (capital plus operating expenses).
In effect, this allows Indonesian companies wishing to obtain the shares to drive a hard bargain as the deadline approaches.
Based on the experience of previous years, Sullivan speculates that not all of the new rules will be implemented according to current formulations.
After the 2009 elections, for example, Jakarta announced implementing regulations that effectively "watered down the conditions by giving the mine owner wider discretion (when choosing sub-contractors)" than the new legislation seemed to imply.
The same may ultimately prove true of the demand that metal and non-metal minerals be processed locally. After all, Indonesia does not have the electrical generating capacity to run the expensive smelting and refining plants that would need to be built. In the meantime, however, a 20 percent tax on unrefined produce - except coal, of course - threatens to make local mining companies globally uncompetitive.
It is well to remember, however, that not all developments in recent years have been negative.
Indeed, such backtracking often follows major advances. The big leap forward in the 2009 legislation was the decision to allow foreigners to hold mining licenses directly.
Previously, foreigners had to enter into contractual agreements with Indonesian companies, many of which had no real intention of using the licenses themselves. The participation of the latter merely added to business costs while doing nothing to encourage local participation in the mining industry.
That said, another provision in the 2009 mining law transferring the authority to issue mining permits to local governments has not worked as intended.
A combination of greed and contradictory legislation has resulted in abuses of power that have produced thousands of overlapping mining permits, creating yet more legal uncertainties.
In the case of Churchill, the local sub-district head said he revoked the company's mining permits because they overlapped with forest conservation areas.
Many in the industry, however, believe the entire thing is a charade designed to pave the way for the Nusantara Group, run by ex-army general Prabowo Subianto, who heads opposition political party Gerindra, to take control.
Foreign mining companies, it seems, will have to wait until after the 2014 elections to know their true fate.
https://www.reuters.com/article/2012/10/01/us-indonesia-mining-explorers-idUSBRE8900C820121001
Indonesia digs hole for itself with new mining laws
By Fergus Jensen and Neil Chatterjee
JAKARTA | Mon Oct 1, 2012 6:14am EDT
JAKARTA (Reuters) - One evening in late September, Peter Wesser and his club of veteran minerals explorers met at Jakarta's Hotel Kristal to swap stories and exchange news. Beer and roast beef were on the menu - on the agenda was trying to figure out how to stay in business.
For decades explorers have enjoyed a place on the cutting edge of the country's mining boom as they scoured the earth for fresh mineral deposits, a process that can take years and cost hundreds of millions of dollars before payback.
But now they complain that new rules aimed at boosting state revenue from natural resources have slashed investment in mineral prospecting and could threaten the entire $93 billion sector.
"Exploration is by nature optimistic," said Wesser, 73, an Indonesian, born to Dutch parents, with decades of mining experience. "The government doesn't understand the importance of exploration ... Mining without exploration is an industry that goes downhill."
The explorers are not the only ones struggling with the impact of the regulations that have caused industry-wide uncertainty in Indonesia, compounding the effects of a global commodities downturn.
Small miners in particular have been hit, leading to mine closures and lay-offs in regions such as Sulawesi island, with some resorting to bribing central government officials to continue to export, according to interviews with four mining executives.
An analysis of official data shows the rules have also caused a slump in exports of ore, leading key buyer China to seek supplies from elsewhere.
The government of President Susilo Bambang Yudhoyono is reforming the minerals sector in a plan to propel the G20 country into a global top-10 economy by 2025.
Mining already contributes 12 percent to GDP, and Indonesia is a world leader in nickel ore, thermal coal and refined tin exports, while bauxite exports have spiked in recent years.
"If we do not begin the efforts to increase mining added value, we will be economically colonized forever," said Deputy Energy and Mineral Resources Minister Rudi Rubiandini.
The regulations restrict the export of raw ores, force foreign miners to divest over half their assets after 10 years of production and require domestic processing of ore by 2014.
SURGE THEN PLUNGE
The most dramatic effect of the new rules has been on mineral exports, which surged as companies fought to beat a May 6 export tax deadline and plunged thereafter.
In August Chinese imports of nickel ore from Indonesia dropped 39 percent to 1.48 million tonnes, following steep falls in July and June, Chinese data shows. China's imports from the Philippines nearly doubled over the same period.
Nowhere is the human impact of the slide more visible than in the remote mining communities of Sulawesi, an island east of Borneo and the country's main source of nickel.
Prior to the regulations coming into force in May up to a dozen ships could be seen standing off the port of Kolaka, waiting to collect nickel ore as fleets of trucks scooped mud from nearby hills and transported it down to the docks.
Now the rudimentary ports stand idle and only security guards patrol the abandoned piles of mud. Workers in Sulawesi said the situation for miners was worse now than in 2009 when the global financial crisis hit commodity exports worldwide.
The plight of Rasiun, a father-of-three, illustrates the impact on miners. The former fisherman and farmer sold his land to miner Prima Nusa Sentosa, who offered him $5 a day to pull tarpaulins over ore to protect it from rain.
When the mine closed because of the new regulations he lost his job, but mining pollution has stained the sea red and made it impossible to go back to fishing.
"We thought we could change our fate with the company. Our land is now owned by the company and run-off from the company has flowed into the sea, so now we are unemployed," he said, adding he was "half-dead" with worry over how he would feed his family.
WORLD-CLASS DISCOVERIES
Thousands of firms are affected by the laws and there is a backlog at the mining ministry in Jakarta as many seek the license, quota and recommendations needed to resume exports.
To cut red tape it helps to pay the ministry between $500,000 and $1.5 million, said a senior mining executive, who declined to be identified. Three other executives at different mining firms also said bribes were required.
"Miners have to get a recommendation from the Energy and Mineral Resources Ministry. What does the word 'recommendation' mean here? You can work that out by yourself," said Juanforti Silalahi, a spokesman for miners' union Spartan.
The mining ministry denies there is corruption in the permit process.
The new regulations do not apply to miners who hold older Contracts of Work (CoW), including some of the most prominent industry names such as the Indonesian units of Freeport McMoRan Copper & Gold Inc (FCX.N), Newmont Mining Corp (NEM.N) and Vale (INCO.JK).
They also do not apply to coal producers, although for both groups the rules have caused unease that the government's regulatory drive will extend to them through higher royalties.
It is not clear whether the export slump, which coincides with a general downturn that has lopped about a quarter off iron ore and thermal coal prices this year and halted major mining investments in Australia, is a blip or part of a realignment that will hurt mining for a generation.
As they ate and drank at the Jakarta hotel, the members of the Forum for Exploration and Mineral Development were pessimistic about their business, which is crucial for long-term industry growth.
Wesser's last firm, Oxindo, a copper explorer owned by Chinese mining group MMG (1208.HK), closed its Jakarta office in September, one of five members of the group to quit since May.
"There will be no more world-class discoveries in Indonesia," said forum head Malcolm Baillie, about a country that is home to a mine with the world's biggest gold reserves.
(Additional reporting by Michael Taylor and Yayat Supriatna in Jakarta and Sonali Paul in Melbourne; Writing by Matthew Bigg; Editing by Alex Richardson)