Indonesia parliament passes new coal-mining law

Indonesia's parliament passed a new law on coal and mining on Tuesday that promises more certainty for investors but may not be enough to attract major new foreign investment to exploit rich mineral resources.

Government officials say the new law will boost revenue from the mining sector as Jakarta is keen to gain greater control of its natural resources. Factions in a parliamentary panel last week finally resolved differences over the bill, after more than three years of wrangling that created uncertainty for miners looking to invest in Indonesia, such as Newmont Mining Corp and Rio Tinto. "We have passed the (coal-mining) law although there were objections from certain factions," Muhaimin Iskandar, a deputy speaker of the house of representatives, said.

Tuesday's session in parliament saw three factions -- the National Mandate Party (PAN), the Nation's Awakening Party (PKB), Prosperous and Justice Party (PKS) -- walk out after rejecting the new law. Several leading international mining firms, including Freeport-McMoran Copper & Gold, already have operations in Indonesia, which has some of the world's largest deposits of gold, tin, coal, copper and nickel.

But some investors have questioned whether the new law will do much to help attract fresh investment due to contentious items such as dropping the current licensing via a contract of work to replace it with mining permits running for shorter periods.  "...it will remove some uncertainty around what system players in the mining industry will be operating under," said Sacha Winzenried, a mining partner at PricewaterhouseCoopers. The bill should encourage some small-scale investors to move ahead with projects, Winzenried added. "However, there will be greater uncertainty around proposed large-scale projects as the new law does not offer the long-term protection of the contract of work system for large, long-life projects which require significant investment."

The new law will require investors to process all mining products into metal locally, whether by setting up their own smelters or by using others, a requirement investors fear would inflate investment costs. Existing Indonesian mining contracts would be upheld, but contractors would have one year to comply with the new rule and would have to process their mining products into metal domestically within five years.

The new coal-mining law, which replaces a 41-year-old mining law, had been held up as lawmakers battled to decide whether the law should cover existing deals, or just new ones.

(Reuters, Dec 12)