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28 December 2009
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Indonesia eyes $3.57bn in mining, geothermal investment

The country can expect up to US$3.57 billion in investment in mining and geothermal energy next year, which would represent an increase by more than 90 percent of realised investment this year, the Jakarta Post quoted a senior official as saying.

For this year, the government predicted investment in the sector would reach $2.33 billion, but only about 80 percent of that target has been achieved so far, according to Witoro Soelarno, the secretary to the directorate general for minerals, coal and geothermal energy at the Energy and Mineral Resources Ministry.

Next year will be another important year for the country’s mining industry as four long awaited implementation regulations to the new mining law are expected to be issued in January. 

The implementation regulations, covering mining areas, coal and mineral businesses, mining supervision, reclamation and post-mining issues, are expected to provide legal certainty and boost investors’ confidence in developing the country’s mining and geothermal reserves, he said.

However, Witoro added that major investment next year would still come from existing concessions rather than new mining licenses issued under the recent law.

“Most of the investment in 2010 will come from existing mining contracts. Investment from new mining licenses will not dominate,” he said in a text message sent over the weekend.

“The increase in investment as a result of the new regulations cannot be estimated yet because the 2010 work and budget plan [from miners] is still being evaluated.

“The potential for new mining licenses from regions is also difficult to evaluate at this stage as the reports are very minimal,” Witoro said.

Indonesia has suffered from a prolonged investment drought in the mining sector for the last 10 years, including in 2007 when commodity prices peaked.

Global mining industry consultant PricewaterhouseCoopers (PwC) said that mining companies operating in Indonesia had so far only invested in maintaining existing operations, while investment in greenfield exploration was very minimal.

Despite the pros and cons of the new mining law, the government expects the law will reduce legal uncertainty and attract more investors to explore the country’s mining potential.

The industry’s concrete response to the law will only be clear after the implementation regulations are issued.

However, Irwandy Arif, chairman of the Association of Indonesian Mining Professionals (PERHAPI), said the effect of the law on investment inflow would not be immediate.

“It will take some time to harmonise all the regulations,” he said.

Irwandy predicted that investment in 2010 would remain focused on additional capital spending for existing concessions rather than the exploration of greenfield areas.

He said these considerations were based not only on the new regulations, but also on the fact that commodity prices remained low.

“Many institutions estimate that commodity prices will remain low, at least until the end of 2010,” he said.


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