Government eyes 38% increase in mining investment, despite concerns

Ika Krismantari, The Jakarta Post, Jakarta

The government is optimistic that mining investment will rebound this year despite concerns that the mining bill currently being debated will result in a major setback for the sector.

In its latest report, the Energy and Mineral Resources Ministry says that total mining investment is expected to increase by 38 percent to US$1.3 billion this year from last year's $945 million.

Energy and Mineral Resources Minister Purnomo Yusgiantoro said that the draft mining law, which is expected to be passed by the House of Representatives later this month, would be the prime mover in encouraging renewed investment in the sector.

Unlike the country's major mining companies, Purnomo said he believed that the mining bill, if passed, would provide more security for mining firms.

Major mining companies grouped in the Indonesian Mining Association (IMA) have protested against the proposed change in the bill from the contract of work (CoW) system to a licensing system.

The miners are afraid that with the change, they will find themselves in an inferior position to government as the government side could revoke their licenses at any time.

According to the ministry report, investment in the coal and mineral sector will increase by 27.9 percent to $1.12 billion this year from $880 million last year, while investment in geothermal exploration and production will increase by 10 percent to $181 million.

The forecast also raises the targets for the production of copper, gold and tin ore. The production of copper ore is expected to rise to 794,036 tons from 771,082 tons in 2006, gold ore to 84.96 tons from 78.50 tons and tin ore to 22,079 tons from 18,074 tons last year.

The country, which is the world's largest thermal coal exporter, is also forecast to see increased coal production of about 16 percent to 196.32 million tons this year from 168.07 million tons in 2006.

The ministry report says that actual investment in the mineral, coal and geothermal sectors in 2006 dropped by 10 percent to $945 million from $1.05 billion in 2005.

Separately, the chairman of the Indonesian Coal Mining Association, Jeffrey Mulyono, said that the targets would be achievable provided the government accommodated investor interests.

"I hear that they are discussing a new arrangement to allow miners to operate under an arrangement similar to the CoW system. This is quite encouraging," he told The Jakarta Post on Tuesday.

The new arrangement, to be simply called a mining agreement, was proposed by the Golkar Party during the deliberation of the bill as a win-win solution to break the deadlock over the mining-license issue.

Jeffrey said he was quite optimistic that if such an arrangement was included in the draft law, the targets could even be surpassed as Rio Tinto alone had committed itself to investing a total of $2 billion in its new nickel mine in Pomalaa, Sulawesi.

"If the government could make Rio Tinto's Sulawesi investment plan a reality, the investment targets could easily be achieved.

Australia-based mining firm Rio Tinto is still in discussions with the government to be allowed to operate the Pomalaa nickel mine under the CoW system.

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