Jakarta: Indonesia plans to limit the area that metal and coal miners can explore to prevent domination by a few companies, a legislator said on Monday, a move analysts said could hurt the already poor levels of investment.
Indonesia has some of the world’s largest deposits of coal, copper, tin, nickel and gold, and is keen to earn more from the sector, particularly as strong demand from China and India is driving prices for many commodities up to record levels.
But the sector has been struggling to attract foreign money as legal uncertainty, rampant graft and red tape have steered foreign investors away from Indonesia.
A draft Bill limiting the exploration area is expected to be passed by August, said Airlangga Hartarto, chairman of a parliamentary commission in charge of energy and mining issues. He said there are currently no such limits.
Indonesia plans to limit exploration and exploitation areas for metal mining, which include tin, copper and gold, to 100,000ha, and 25,000ha per firm, respectively, he said.
The country would also limit exploration and exploitation areas for coal mining to 50,000ha and 15,000ha per firm, respectively.
“This is aimed at preventing mining firms from controlling large areas. The current system has allowed firms to have mining areas above 100,000 hectares,” Hartarto said.
He added the limits will not affect existing contracts.
Mining analyst Yusuf Ade Winoto of brokerage PT DBS Vickers Securities Indonesia said the move could hurt investment in the long run, but the limitations would help the government protect the environment. “In general, it may hurt foreign investment in the sector.”
He, however, said that the move is unlikely to hurt over the short term big mining companies already operating in Indonesia as the limitation will not affect their existing contracts.
The mining industry grew by just 2.2% in 2006, government data shows, much slower than overall economic growth of 5.5%, due to the absence of major investment in the past years.
Investment by foreign and domestic firms in Indonesia’s mining sector averaged just $800 million a year between 2000 and 2005, and is set to reach only $1.5 billion this year, partly because of prevailing uncertainty over a new mining law.
Some of the world’s top mining firms such as Freeport-McMoran Copper and Gold Inc. and PT International Nickel Indonesia Tbk have operations in the country.