Indonesia seeks to mend fences with wary investors in resources

[JAKARTA] Nationalistic policies imposed by Indonesia's previous administration - including a ban on unprocessed mineral exports - threw the resources sector into turmoil last year.

Now, there are signs under President Joko Widodo that the government is trying to mend fences with wary investors and entice more money back into resources.

Indonesia's resources sector contributed about 12 per cent of GDP last year, or about US$101 billion, but investment slipped and the ban on exporting minerals cost US$6 billion in lost revenue.

The government now plans to relax parts of the ban, as well as pushing to resolve some protracted mining disputes and dealing with a backlog of expiring energy contracts that have frustrated foreign investors. "There are still lots and lots of difficult hurdles to overcome, but we are seeing something of a change in mindset and that's good news," said mining law expert Bill Sullivan, foreign counsel at Christian Teo Purwono & Partners.

The more open approach was on show at a recent global coal conference in Bali, where Indonesia's energy and mining minister, Mr Sudirman said, candidly answered questions on a host of issues concerning the packed auditorium after his speech.

Indonesia is a top producer of metals such as copper, as well as coal and gas, but foreign firms often complain about legal uncertainty, red tape and haphazard implementation of policies.

This policy uncertainty came to a head last year when Jakarta pressed on with the ban on mineral exports, even though there was not enough smelting capacity yet to process shipments.

While supporting the plans, Mr Joko's government now admits there were mistakes implementing them and is looking to push back a 2017 deadline banning copper concentrates exports and could ease its ban on bauxite exports.

DISPUTES

Mr Joko, who took office in October, will need to win the trust of the industry to meet a target of increasing mining revenue by about 50 per cent this year to support a flagging economy.

Indonesia's foreign direct investment in mining slipped to US$4.67 billion last year from US$4.82 billion.

According to a source familiar with the negotiations, London-listed Churchill Mining is in talks with the government aimed at reaching a settlement in a long-running arbitration dispute over the licensing of a Borneo coal project.

The government and Freeport-McMoRan Inc also said this month that they were closer to agreeing a new contract to operate the US miner's giant Papua copper mine after earlier threats to remove its permit over a smelter dispute.

Still, enticing investment at a time when most commodity prices have slumped won't be easy, particularly without co-ordinated policy making. "Among high level officials in the government, they still don't have a consensus," said Tato Miraza, former CEO at state-owned miner Aneka Tambang.

The mining and energy ministry says it is holding regular meetings with other ministries, state-owned enterprises and industry bodies in a bid to fix this.

OBSTACLES TO REFORMS

The government has also been pushing plans to overhaul Indonesia's oil and gas sector and tackle a so-called "oil mafia" accused of skimming money in oil deals.

But Mr Joko still faces obstacles to his policies, particularly since he lacks a majority in parliament, as well as facing legal challenges from Muslim groups such as Muhammadiyah over private participation in the oil, gas and water sectors.

Nonetheless, in another sign that issues are being fixed, Indonesia last week said it would allocate Total and Japan's Inpex a 30 per cent stake in the Mahakam oil and gas block once the French major's operating rights to the country's top gas field expire in December 2017.

The decision resolves a more than seven-year tussle over the block, and follows calls for it to be handed over entirely to state-owned energy firm Pertamina.

REUTERS