Apr 24, 2014, 9:38 am (BST)
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Indonesian 'resource nationalism' irks foreign investors
JAKARTA, March 21 (BSS/AFP) - Foreign investors are bemoaning a new law in Indonesia that strips them of control over mining assets, the latest in a rash of regulations that reflect what they see as growing "resource nationalism".

The law announced this month obliges foreigners to divest at
least 51 percent of their shares to Indonesians over a 10-year

"We would like the benefits of our country's resources to
reach more Indonesians," energy and minerals ministry resources
director Thamrin Shiite said.

"Locals living around mines always say they want a share of
what the companies are earning."

Indonesia, Southeast Asia's largest economy, has some of the
world's biggest untapped mineral reserves, including tin, nickel,
copper and gold.

Talks of benefit-sharing intensified last year in parliament
during a three- month strike at a giant gold and copper mine
owned by US company Freeport- McMoRan, which ended with a 37
percent pay hike for workers.

Political and economic stability over the past decade have
empowered Indonesians to demand a greater share of the country's
wealth -- and stability has also attracted investors.

Foreigners poured a record $20 billion of investment into
Indonesia last year, according to government data, as the economy
grew by 6.5 percent. Of that money, $3.6 billion went into

But investors now complain the government is sending mixed
messages, passing a mining law in 2009 to improve the investment
climate, then shifting to a more protectionist stance.

"Under the 2009 mining law, foreigners could for the first
time fully own mining licences," Deloitte mining consultant
Julian Hill said.

"It seemed to be a new dawn in Indonesian mining, so
foreigners rushed in. It was a false dawn as it turned out."

Since the 2009 law was passed, no new licences have in fact
been passed.

"The new law requires a tender process, but the terms for the
tender process have never been decided, so no licences have been
issued. Talk about uncertainty," Hill said.

Perth-based mining veteran David Quinlivan is all too aware
of that uncertainty. His London-listed company Churchill had its
exploration permits revoked.

In partnership with a local company, Churchill had obtained
permits on 35,000 hectares of land on Indonesian Borneo,
expecting to find 100 million tonnes of coking coal.
Instead, it found a staggering 2.8 billion tonnes, one of the
world's largest reserves, which it says could bring in up to $1
billion a year for the next 25 years.

After Churchill publicised the finding, its permits were
revoked by the East Kutai district head and were returned to the
former concession holder, the Nusantara Group, which declined to

Nusantara is owned by one of Indonesia's wealthiest men,
Prabowo Subianto, the former head of the notorious Kopassus
special forces unit, and a presidential aspirant.

He stands accused of orchestrating atrocities, including
rape, murder and torture, in East Timor during Indonesia's brutal
24-year occupation.

Churchill -- whose share price plunged 10-fold, from above
130 pence ($2) in 2010 to around 13 pence today -- is now banking
on the Supreme Court to overturn the revocation, or to achieve a
commercial settlement with Nusantara.

"It's disappointing where we are. Indonesia's a great place
for natural resources," Quinlivan said.

"But we never expected the government to reissue licences,
that never entered our heads. If land title isn't fixed, that's a
real problem for Indonesia. Investors need security."

The case highlights the difficulty of working in Indonesia's
decentralised context, with the power to issue permits devolved
to 399 district governments, who now do the job that one central
body had done for more than 30 years.

But Indonesia is not alone in seeking to prise back some of
the booming revenues flowing to miners in recent years, as global
commodity demand has surged on the back of growth in China and
the rest of Asia.

Australia, Ghana and South Africa have all either introduced
or deliberated higher taxes or levies on miners to ensure the
wealth is more evenly distributed.

Accounting firm Ernst & Young in a report last year cited
resource nationalism as the biggest global risk in mining and
metals, ahead of infrastructure access and problems obtaining

Indonesia plans to ban the export of raw minerals by 2014 to
stop foreigners gutting the land and to encourage local
processing industries.

But the Indonesian Mining Association warns that the country
will be no better off if foreign investors are turned away.

"We're not ready for these policies," the association's
executive director Syahrir Abu Bakar said.

"It takes six or seven years just to build a smelter, so if
the government doesn't come up with better infrastructure fast,
Indonesians will lose jobs," he said.
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