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Indonesia needs to introduce market-friendly regulations in
order to encourage more investors to explore the country's rich mineral
resources, a senior executive of a major mining company says.
Roberto Castello Branco, a director of one of the world's biggest
miners, CVRD Inco, said during a panel discussion Friday that Indonesia
should take advantage of soaring global mineral prices by encouraging
more investors to tap into the country's natural resources.
However, he stressed that the Indonesian government would need to adopt
regulations in the mining sphere that were more investor-friendly if it
wanted the world's major players to set up shop here.
"Indonesia has a lot of potential for growth. However, the government
needs to understand that what the investors want is certainty," he
said. "That's why regulation that is clear and accommodates our
interests will be appreciated," Branco said, commenting on the new
mining bill, which is currently being deliberated by parliament.
The bill envisages the replacement of the current Contract of Work
system for awarding exploration rights to investors with a permit
system. The change has drawn protests from mining companies, which say
that the new system will lead to a lack of legal certainty for
investors.
Under the provisions of the bill, a mining firm will have to apply for
mining permits to a number of government institutions, depending on the
proposed size of the mine, before being able to commence operations.
If the project is located within one regency, then the mining firm will
have to seek a permit from the regent, while if the project straddles
more than one regency, the provincial governor will have the right to
issue the permit. In a case where the project straddles more than one
province, the firm will have to apply to the central government for its
permit.
This system, according to the industry, will create uncertainty as
firms will have to deal with government at a variety of different
levels, including local governments, which are notorious for red tape.
Also speaking during the discussion, Andrew Wilson, a senior executive
at BHP Billiton, said it would not be too late for Indonesia to amend
the bill in line with the industry's expectations.
He said that besides changing the mechanism for awarding the
exploration rights, the government's attempt in the bill to separate
the exploration permit from the exploitation permit could pose other
problems.
Under the bill, an exploitation permit will only be issued after the
company has completed its exploration work.
"We will not invest in things that are not clear. What company will
carry out exploration work if it is not clear whether it will finally
get an exploitation permit?" Wilson said.
The mining bill, which has been under deliberation for almost two
years, is expected to be enacted into law at the end of this year, with
only one contentious issue now left to be discussed.
Despite the legal problems, Bronco said that CVRD's subsidiary, PT Inco
Indonesia, would continue to expand its nickel mining operation here.
CVRD, which is also the world's second largest nickel miner, owns a
60.8 percent stake in PT Inco, the country's biggest nickel producer.
As part of the company's global investment plan of US$59 billion
worldwide over the next five year, Branco said that his company planned
to invest about $250 million this year in a number of nickel projects
in Sulawesi.
"We are studying the projects to make sure that we won't make mistakes.
We will also monitor the government's decision on the new law," said
Branco, who was one of the panelists in the discussion.
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