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NEWS UPDATES Asean Affairs        11  May 2011

Indonesian mining law overhauled

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A report by Standard & Poor’s Ratings Services that a regulatory overhaul of Indonesia’s mining industry would hurt companies’ performance received mixed reviews from the industry on Tuesday.

The report, “Indonesia’s Mining Law of 2009 and Subsequent Regulations: Unearthing the Impact,” explored how the law would affect companies in the country’s mining sector.

Credit analyst Xavier Jean said he did not anticipate any immediate implications for the rating of mining companies since Standard & Poor’s ratings already incorporated degrees of regulatory risk.

“Some regulatory provisions have direct implications for the revenue, profitability, capital expenditure and cash flow of mining companies in Indonesia,” Jean said. “Besides increasing operating uncertainty for Indonesian mining companies, we believe the new regulations may also make the industry less attractive to foreign investors.”

Increased operating costs, possible delays in awarding mining licenses because of decentralized decision-making and requirements for greater domestic processing were among the factors that could weight on profits.

He also said the regulatory environment was “still evolving, and the implementation of government regulations passed so far may differ somewhat from their original forms.”

Under the 2009 law, regional governments will issue mining licenses instead of the central government. It also reduced the lifespan of the new regulations to 20 years, down from 40 years in the previous law, and required miners to set aside 25 percent of their production for sale in Indonesia.

Bimo Budi Satriyo, corporate secretary of Aneka Tambang, Indonesia’s largest gold and nickel producer, said the law was an opportunity and a challenge.

“I think the regulation is good because the government does not want companies to only sell natural resources,” he said. “There will be added value for minerals, and in the end that will create a multiplier effect that can improve the economy within the region.”

Aneka Tambang already has a number of mineral processing projects in the works, Bimo continued, including a bauxite refinery in West Kalimantan and three smelters in South Sulawesi.

Bob Kamandanu, chairman of the Indonesian Coal Mining Association (APBI) and a commissioner of Berau Coal, said the shorter lifetime of the regulations created uncertainty.

“Coal mining is a long-term business. Twenty years is too short,” he said.

Sudharta, spokesman for state coal miner Perusahaan Tambang Batubara Bukit Asam, said he was confident the new law would not have any adverse effects on the company.

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