Jakarta. The government plans to revise a regulation to allow miners to submit their request to renew contracts 10-years before the contracts’ expiry date, an official at the Energy and Mineral Resources Ministry said on Wednesday.
Said Didu, a member of the national smelter development team at the Energy and Mineral Resources Ministry, said the government will revise the existing regulation, which says miners can only submit their request to renew existing contracts, at the earliest 2 years, and at the latest six months, before the contracts expire.
Didu, a former secretary at the State-Owned Enterprises Ministry, said specifically miners, including Freeport Indonesia, a local unit of US mining giant Freeport-McMoRan need assurance before they sink massive investments in to the country.
He said if the government stick to the old regulation, which current requires miners to submit renewal requests at the fastest two years before the contract expire, then “nobody would want to invest.”
“I think it has to be made into more realistic,” Didu said.
He said to accommodate such need, Indonesia will have to revise a 2014 regulation (number 77) which covers permit extensions for mineral and coal miners, which still hold the old type of permits, which is contracts of works.
On Freeport, Didu specifically said that Freeport needs assurance over their operations after their contract of works expire in 2021. The miner signed its first contract for Grasberg in 1967.
Didu said business certainty is important before making a huge investment. The American mining giant has already agreed to a $2.3 billion copper smelter in East Java as it prepares to spend $15 billion for the expansion of its mining operations this year from open pit into underground mining. Didu said the smelter and underground mining development are related.
“If there is no certainty over the fate of the underground mining,” then the company would see little incentive to build the smelter.
Didu said investment for underground mining typically starts 10 years before production. He said it is not realistic for Freeport to wait until its contract is two years away from expiration.
Freeport Indonesia’s previous chief, Rozik B. Soetjipto, told GlobeAsia in 2012 that the company was in a race ahead of the 2017 depletion of surface resources at its Papua mining site.
Fabby Tumiwa, executive director at thithink tank Institute for Essential Services Reform, said he agreed the nature of investment in the mining sector is long-term.
“Every project is different … the new policy will definitely give time for investors to signal whether they plan to invest or not,” he said. “But I think a 10-year period is a bit too long. Maybe the government and businesses can reach a compromise at around five to seven years, and this period has to be tied in to the estimated value of the investment,” he said.
Furthermore, the contract extension must be followed with a proper investment plan, Fabby said.
“The goal of the contract is investment. The government has to evaluate whether the investment value is worth the contract extension,” he said.
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