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March 2, 2009

Indonesia’s new mining law fails to clear doubts - survey

Despite the enactment of the new mining law, Indonesia will probably continue to suffer from a prolonged investment drought in the mining sector, reported the Jakarta Post, citing a survey.

A recent survey by mining industry consultants PricewaterhouseCoopers (PwC) shows investors conclude the new law may not facilitate clear solutions to longstanding uncertainties that have plagued the Indonesian mining industry.

"The terms of the law may be adequate to encourage some investors to take direct equity stakes in relatively small-scale projects. This will have a positive impact on investment," PwC's mining technical adviser Sacha Winzenried said.

"However, there is likely to be greater uncertainty around large-scale capital projects, as the new law does not offer the long-term protection of the contract of work system."

The new mining law, Law No.4/2009, no longer maintains the mining contract scheme, adopting instead the rather different mining license scheme.

"The contract of work (scheme)told the companies that you can operate for 30 years and there was a fixed term for that. But, under the new legal framework, you are subject to the normal processes of the Indonesian legal system. So the question is, are investors comfortable with the Indonesian legal system? If they are not, then that will reduce investment," Sacha said.

PwC claims its survey represents more than 90 percent of Indonesian mining industry stakeholders. Data was collected through interviews with company executives.

It was reported 65 mining companies participated in the survey which is now being reported on.

Sacha said that some small investments had been made in previous years, including in 2007 when commodity prices were surging.

"The survey data for Indonesia, again, continues to show minimal investment in greenfield exploration, and that other investment spending is mainly for replacement plant and equipment to maintain existing operations," he said.

Energy and Mineral Resources Minister Purnomo Yusgiantoro acknowledged that the new mining law might not satisfy everybody.

"But, the law provides legal certainty and we believe this will create a conducive investment climate," Purnomo said.

He added that the government could no longer use the contract scheme, because under that framework the government had dual roles both as regulator and player.

"We cannot play those two roles at the same time. Other countries also do not adopt the contract scheme anymore," Purnomo said.

He added the government was formulating four derivative regulations which are expected to provide clearer guidelines on the law.

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