Indonesia Mining 2012 - GBR

Heritage Foundation’s Economic Freedom Index has consistently
improved over the period from 2008 to 2012; although it still sits
slightly below the regional average, it must be remembered that
this is a region that includes Hong Kong and Singapore, ranked first
and second in the world respectively. In the World Bank’s Doing
Business rankings, although Indonesia’s position fell three positions
between 2011 and 2012, its performance in areas such as dealing
with construction permits, protecting investors, and starting a business
has significantly improved since 2004.
On the other hand, Indonesia’s position amongst the country’s
ranked in the Fraser Institute’s Annual Survey of Mining
Companies has been stagnant, remaining around the bottom 10
for the past few years. Indeed, its 2011/2012 results in this survey
gives a strong indication of both the challenges and potential
that exist; its third-from-bottom ranking for “regulatory duplication
and inconsistencies” speaks volumes about the uncertainty
the 2009 Mining Law has introduced, yet its second position for
“room for improvement” shows a distinct hope that this uncertainty
can be addressed.
As part of its strategy for the development of the country’s economy,
the national government has set an ambitious goal of making
Indonesia one of the 10 largest economies in the world. With the
mining sector already contributing close to 7% of the nation’s GDP,
the government has designated the sector as one of its cornerstones
in the effort to realize this goal. However, it is difficult to comprehend
how the government hopes to achieve this goal without the
support of the global investment community.
As illustrated in this report, however, many in the global investment
community continue to remain wary of Indonesia; uncertain
of the effect that the 2009 Mining Law has had and will
have on mining and mineral exploration activities in the country.
While it is certainly true that many international players have entered
the country, are operating in the country, and are prospering
in the country, it is nonetheless the opinion of many that the
Indonesian government must be both more friendly to business
and more definite on what requirements for foreign companies
are. The effect of continued uncertainty is already clear; a declining
number of juniors.
To resolve this issue, it is imperative that the government approach
the mining industry the same way it would any other sector.
Understandably, natural resources are a very touchy topic for any
national government. Nonetheless, in order for Indonesia to realize
the true potential of its mining sector, it must adopt a regulatory
framework that is conducive to foreign investment.
Although much criticism has been directed towards the negative
effects that a non-existent junior explorer sector will have on future
metals discoveries, the detrimental impact of this law extends to
the coal space. Indeed, with the fossil fuel sectors growth expected
to continue, the damage caused by the regulatory changes are presently
less pronounced than they are in the metals space. However,
as coal projects get more complicated and capital requirement increase,
then growth will certainly falter if current laws are kept in
place. In short, it is imperative that the government address these
issues before it is too late. If the government fails to pay attention
to the desires of the mining community, then expansion of the sector
will certainly slow down.
Striking the correct balance between protecting national mineral
wealth and inviting foreign investment is a difficult task. However,
given the country’s success in navigating the difficult waters of democracy,
investors should remain hopeful that Indonesia will strike
that balance sooner rather than later. When they do, Indonesia’s
substantial mineral wealth should attract the world’s attention.
www.e-mj.com E&MJ • JULY 2012 83