Mining companies wait and see

Down to Earth No. 44, February 2000

Companies are hinting they may withhold further investment if conditions don't improve.

Mining companies with mines or exploration programmes in Indonesia are claiming that illegal mining and the collapse of law and order is threatening the mining industry there. Some also fear that decentralisation - required by laws passed last year - could lead to unreasonable claims being made on them by local authorities and that their existing contracts, which were more or less sacrosanct under Suharto, will be subject to unwelcome change.

"If the government can't guarantee security, then the whole contract system is undermined," said John Vernon, president of Aurora Gold. Parts of Aurora's Indo Muro Kencana gold mining operations in Central Kalimantan have been reoccupied by the original indigenous landowners (see DTE 43:9) and, according to the Far Eastern Economic Review, Aurora may be forced to pull out of the mine altogether (16/Dec/99).

Minister Yudhoyono says he will set up a task force to deal with illegal mining and crack down on military, police and government officials involved. He said he was also considering ways of regulating traditional mining activities by local communities.

So called "illegal" mining has increased due to economic pressures and the lack of law enforcement since the fall of Suharto in 1988. Indigenous communities are also stepping up action against mining companies and other resource extraction industries which have violated their traditional rights. In the coal sector particularly, larger, uncontrolled mining operations have emerged. In South Kalimantan 3 million tonnes of coal is thought to have been mined last year by these operations. Illegal dredges financed by local businessmen are excavating river beds in search of gold in parts of South and Central Kalimantan. NGOs in the province have called for a halt to all coal mining in the province because of serious social and environmental impacts (see also DTE 43:11).

Companies are also waiting to see how decentralisation measures proceed before committing more funds to Indonesian projects. The lawsuit brought against PT Newmont Minahasa Raya by the local administration in North Sulawesi over unpaid taxes is being followed with interest by the mining fraternity (see below). In East Kalimantan coal miners Kaltim Prima are waiting to see whether the central government will allow the provincial authorities to gain a majority stake in the company - a move which mine operators Rio Tinto argues would violate their Contract of Work (CoW). The company has warned that, if approved, the share deal would have a negative affect on the mining investment climate in Indonesia. Also of concern is a regulation passed by the South Kalimantan assembly which imposes a yearly Rp 55,000 (US $8) fee for each hectare mined. (Current land rent levels in CoWs are far lower).

"From mid-1998 until today, a climate of indecision has hung over the industry in general and the mining industry in particular," said the executive director of the Indonesian Mining Association (IMA) Paul Louis Courtier. "Most of the producing mines are under criticism for environmental and social dissatisfaction. In many cases, this has its roots in the dissatisfaction against the previous regime but the companies are being blamed."

And so they should be. Local communities and NGOs supporting them have campaigned to stop companies hiding behind the abusive laws of authoritarian regimes like that of former president Suharto, but the industry has, for the most part, declined. It was inevitable that companies which profited from laws violating resource rights of local people should be the target of their anger now.

The danger now is that mining companies will use the threat of withholding more investment to retain good access to mineral-rich lands and influence government policy-making on mining. This is bad news for communities and the environment. Companies are already complaining about updated rules on community development, with one senior executive quoted in the Far Eastern Economic Review claiming if he followed the contract to the letter "we wouldn't be in business."

At the same time, Indonesia's democratically elected government is now answerable to the people who voted it in - people who are becoming increasingly aware of the need to guarantee human rights and protect the environment.

(Sources:Jakarta Post 29/Nov/99, 13/Dec/99 & 3/Jan/2000, 24/Jan/2000, FEER 16/Dec/99)