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Indonesian autonomy plan hits mining
sector
By Tony Sitathan
SINGAPORE - When the concept of Indonesian
regional autonomy was first discussed in 2000 and later
implemented by then president Abdurrahman Wahid, it was
seen as a political move by his faction to gain popular
support. Regional autonomy was then seen as the
offspring of his democratization efforts. But little did
the president realize that it was in fact a Pandora's
box of potential discontent.
The Regional
Autonomy Bill that was passed by Indonesia's parliament
in 2001 had far-reaching implications. "Although it was
well intentioned, the very nature of the regional
devolution of power from the centralized government to
the provincial government coupled with the rules of
direct and indirect taxation, is too huge a pill to
swallow, even for the present government," said Ted
Dermawan, a legal partner for a boutique legal firm
specializing in foreign investments and joint-venture
partnerships. Needless to say, Megawati Sukarnoputri,
the current president, has inherited this regionalism
legacy from her predecessor Wahid and although she has
not publicly rebuked the policy, she has made several
overtures to strengthen her hold on the Indonesian
republic by introducing measures to establish some form
of command and control of the armed forces as well as
effecting several measures to promote her brand of
nationalism in Indonesia.
The Regional Autonomy
Law was molded after the 1954 model of the Federated
States of Malaysia, whereby regional governments would
be given the bulk of revenue generated from their
provinces and would be independent from the central
government even for local administration and governance.
It is contrary to the Suharto model of the past, whereby
the central government in Jakarta decided what revenues
and taxes should be sent back to the regencies and
decided what was good and what wasn't for them.
Now the regencies have an equal say in how to
run their own provinces - 27 in all. Despite the
promises of decentralized control and the autonomy of
the regencies, there was still much uneasiness on how
such lofty policies would be carried out by the
provincial governments since they were inadequately
prepared administratively as well as having a shortage
of technical knowledge in understanding complex issues
of foreign direct investment (FDI) and joint-venture
programs.
Programs that had been approved by the
central government would now have to be scrutinized by
the regional governments as well. Even distribution of
taxes and ownership issues would become important for
regional provincial governments. Foreign investors in
charge of bringing much-needed FDI to Indonesia were at
first stunned by the sudden need to deal with a Regional
Autonomy Law that would later form the backbone of their
operations in Indonesia. Many of them were already
involved in mining and oil-and-gas projects that
amounted to several billion dollars' worth of
investment. There were concerns, especially among the
mining firms, that regional development would hamper
their production contracts as well as ownership of their
mines.
A case in point is the legal wrangling
between Kaltim Prima Coal (KPC) and the East Kalimantan
government. A local company, Bumi Resources, plans to
take over 51 percent of the mine in cooperation with the
East Kalimantan government. The issue has yet to be
settled. While the international community awaits the
outcome of the KPC case, the word is already out that
doing business in Indonesia under the regencies can be
an uphill struggle. KPC has also reported that it has
reduced its exploration budget to only US$25 million for
this year compared with $345 million three years ago.
This is due to the uncertainty faced by KPC.
In
order to facilitate the devolution of power from the
central government as well as deal with the initial poor
international image of the regional governments, a task
force was formed comprising representatives of the
presidential office and several government ministries.
The task force has the power to decide which regions are
prepared to accept autonomy and which were not. The task
force will handle matters such as permit requests and
the transfer of technical guidelines and technology as
well as making sure that the provinces understand the
changes in the mining-tax laws. It intends to act as a
go-between for the various parties involved in the
implementation process, since it was found that fewer
than 10 percent of the regions have the resources to
manage the general mining industry.
According to
Agus Widjaja, a consultant with a state-owned mining
company, "Indonesia is plagued by its past, where it is
now forced to accommodate the various changes that is
driving certain sectors of the mining economy."
Paul Courtier, executive director of the
Indonesian Mining Association, recently announced that
most of the mining companies that have canceled or
postponed their plans are companies whose projects are
still at the exploration stages. "Their inability to
have easy access to banking loans is creating some
concern," he maintained.
Most Indonesian banks,
under the present climate of economic and political
uncertainty, are selective in disbursing loans. They
prefer to channel funds to projects showing strong legal
assurances for their existence as well as a long-term
commitment by the central government. Can the regional
governments provide the same level of guarantees and
pledges as the central government? More important, do
they have the authority to do so?
More
disturbing, Indonesia's mining industry has been marred
by friction with local residents, labor strikes and
illegal mining activities in some regions. Rampant
illegal mining has been reported from Tanah Laut and
Kota Baru regencies in South Kalimantan. The local
residents in many of the mining areas in Kalimantan,
North Sumatra and West Papua have agitated for control
of land that they claimed within their territory. The
slow progress in enforcing the regional-autonomy
legislation is also creating some uneasiness among the
mining companies.
"It's a difficulty to plan and
set things in motion when you have to second-guess what
the government is going to do under the regional
governments," complained an official from PT Timah, one
of the largest tin-mining companies in Indonesia.
Faced with these difficulties, according to
Energy and Mineral Resources Minister Purnomo
Yusgiantoro, the central government has decided to
extend the deadline for the delegation of regional
authority until 2005. He claimed that the full transfer
of mining rights would be completed in different phases
for the next five years. "The central government will
act as a facilitator to expedite the learning process,"
he said.
However, Andi Mallarangeng, a former
staff member of the ministry in charge of regional
autonomy and a political scientist at the Institute of
Government Studies, maintained that the minister of
energy and mineral resources had no grounds to propose a
gradual devolution of power through 2005. In essence
that would mean dumping the Regional Autonomy Law, and
no government, he said, would have the stomach to throw
out a bill that was passed in parliament, thereby
setting a precedent.
The director general of
geology and mineral resources, Wimpy S Tjetjep,
concluded that without the implementation of the
Regional Autonomy Law the mining sector would be
adversely affected, since there would then be no way to
ensure continued investment by foreign mining concerns.
So far it has been reported that close to a US$1
billion in projects, especially involving exploration of
new mining areas, have been halted because of the
relatively unstable political direction taken by the
Megawati government. Noke Kiroyan, chairman of the
Anglo-Australian mining company Rio Tinto, said
investors are looking for long-term objectives. "Mining
firms are going ahead with their operations as long as
there are no significant short-term issues such as
international contract procedures, administration
transparency, industrial disputes or friction with the
local community," he said.
However, many
international companies are worried about the changes
the law will bring about and say new investments, at
least over the short term, will not be so readily
forthcoming until things have settled down, not a
surprise under the circumstances. They have also agreed
to comply with the clause of the Regional Autonomy Law
mandating that 80 percent of the royalties for mining
production will be sent to the local provincial
governments instead of the central government.
Many also agreed that the Indonesian government
has exercised its political will in agreeing to transfer
its mining rights to the local administrations. An
official from PT Adaro Coal maintained that Indonesia is
grappling with a very sensitive issue, especially in
relation to giving a greater say to the provincial
governments. "This is a breakthrough, especially for the
regional provinces. However, whether the central
government exercises this option to the letter is
another concern," said the official.
For some,
such as Medco Energy Corp, the coming changes in mining
law will not hinder mining operations. But one major
concern is providing security to the mining companies.
Medco wishes that the regional law-enforcement agencies
would provide better security to the mining sites.
In the meantime, consultants such as Widjaja are
generally worried that the legal uncertainties in
Indonesia might prompt investors to adopt a cautious
investment policy and damage its reputation as the
mining haven of Southeast Asia.
Whether
Indonesia weathers the storm and successfully puts its
house in order remains to be seen.
(©2002 Asia
Times Online Co, Ltd. All rights reserved. Please
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