New Indonesia law irks foreign investors
Foreign investors are bemoaning a new law in Indonesia that strips them of control over mining assets, the latest in a rash of regulations that reflect what they see as growing ‘resource nationalism’.
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Regulation strips foreigners of control over mining assets
AFP
23 March 2012
Foreign investors are bemoaning a new law in Indonesia that strips them of control over mining assets, the latest in a rash of regulations that reflect what they see as growing ‘resource nationalism’.
The law announced this month obliges foreigners to divest at least 51 per cent of their shares to Indonesians over a 10-year period.
‘We would like the benefits of our country’s resources to reach more Indonesians,’ energy and minerals ministry resources director Thamrin Shiite said.
Talks of benefit-sharing intensified last year in Parliament during a three-month strike at a giant gold and copper mine owned by US company Freeport-McMoRan, which ended with a 37 per cent pay hike for workers.
Political and economic stability over the past decade have empowered Indonesians to demand a greater share of the country’s wealth - and stability has also attracted investors.
Foreigners poured a record US$20 billion of investment into Indonesia last year, according to government data, as the economy grew by 6.5 per cent. Of that money, US$3.6 billion went into mining.
But investors now complain the government is sending mixed messages, passing a mining law in 2009 to improve the investment climate, then shifting to a more protectionist stance.
Since the 2009 law was passed, no new licences have in fact been passed.
Perth-based mining veteran David Quinlivan is all too aware of that uncertainty. His London-listed company Churchill had its exploration permits revoked.
In partnership with a local company, Churchill had obtained permits on 35,000 hectares of land on Indonesian Borneo, expecting to find 100 million tonnes of coking coal.
Instead, it found a staggering 2.8 billion tonnes, one of the world’s largest reserves, which it says could bring in up to US$1 billion a year for the next 25 years.
After Churchill publicised the finding, its permits were revoked by the East Kutai district head and were returned to the former concession holder, the Nusantara Group, which declined to comment.
Churchill - whose share price plunged 10-fold, from above 130 pence in 2010 to around 13 pence today - is now banking on the Supreme Court to overturn the revocation, or to achieve a commercial settlement with Nusantara.
The case highlights the difficulty of working in Indonesia’s decentralised context, with the power to issue permits devolved to 399 district governments, who now do the job that one central body had done for more than 30 years.
But Indonesia is not alone in seeking to prise back some of the booming revenues flowing to miners in recent years, as global commodity demand has surged on the back of growth in China and the rest of Asia.
Australia, Ghana and South Africa have all either introduced or deliberated higher taxes or levies on miners to ensure the wealth is more evenly distributed.