MAC: Mines and Communities

Are $14bn worth of Indonesian mining projects at risk?

Published by MAC on 2010-08-16
Source: Reuters, Jakarta Globe (2010-08-04)

The latest round in the battle to halt all mining in Indonesia's protected forest areas seems to have been won by the environmentalists.

But it is unclear just how many projects will be affected by a proposed moratorium - and how effective it will be.

At present, the draft rules propose a ban lasting only two years.

Although  a government representative last week hinted that the moratorium might be extended, he also said that compensation to companies would come in the form of "land swaps".

Such "swaps" have been pioneered during the past ten years by Rio Tinto and Fauna and Flora International. So far, they have been used to justify mining in one ecologically sensitive area provided another one of equal merit is purchased and preserved.

It is difficult to see how such an exchange would meet the requirement to reduce the overall impacts of extraction in a country such as Indonesia, where all mining has proved to be problematic.

For a recent discussion of this issue, please see: London Calling resumes its attack on the "capitalising" of Nature

Moratorium may hit $14bn of Indonesian mining projects

By Fitri Wulandari and Sunanda Creagh

Reuters

4 August 2010

JAKARTA - Several coal and mining projects in Indonesia with a combined value of $14 billion may face delays as a forest moratorium could make it harder for them to obtain forestry land-use permits, mining associations said on Wednesday.

Newmont Mining Corp, BHP Billiton, and Freeport McMoRan Copper & Gold Inc , are among the companies whose projects in Indonesia may be affected, officials said.

Newmont's Indonesia unit has plans to develop the Elang copper reserve in Sumbawa island, while BHP Billiton has the Maruwai coal project in Kalimantan, and Freeport operates the giant Grasberg copper mine in Papua.

Indonesia has drafted rules for a two-year ban on permits for forest clearing, after signing a $1 billion climate aid deal with Norway aimed at avoiding greenhouse gas emissions from deforestation.

One of the clauses in the draft states that permits to convert peatland and natural forests that have already been issued will continue to be valid.

However, another section states that "there will be an assessment of the economic impact and revocation of permission to convert peatland and cessation of issuing new permits."

The moratorium, if applied, would make it harder for miners to obtain forest land-use permits and they may risk having their existing forest permits revoked, said Priyo Pribadi Soemarno, executive director of Indonesia Mining Association.

"We support the moratorium but we see an attempt to review permits that have been awarded and this is negative for investment," Soemarno told reporters on the sidelines of a mining seminar, adding that there are more than eight mining projects with a combined value of $14 billion which may face delays.

"This means existing projects will face obstacles to proceed. Investment that has been planned may be delayed," he said.

"Freeport also may face problem as it still needs to process its forestry permit to develop Grasberg," he said.

Freeport owns 90.64 percent of PT Freeport Indonesia, which operates the huge Grasberg copper and gold mine in Papua province, while the Indonesian government owns the remainder.

Indonesia's forestry ministry in February said it has asked Freeport to submit a request to use land in a protected forest area.[ID:nJAK539713]

President Susilo Bambang Yudhoyono has vowed to cut greenhouse gas emissions by as much as 41 percent from business as usual levels by 2020.

The vast majority of Indonesia's emissions are caused by the clearing of carbon-rich natural and peatland forests so curbing deforestation is seen as a quick win.

Daniel Murdiyarso, senior scientist at the West Java-based Center for International Forestry Research said the moratorium on the issue of new permits to clear natural and peatland forests could affect many production forests.

"So if your mining concession is intersecting with production forest then it's very likely they will be affected. Most of the mining sectors, especially coal, will be affected."

Indonesia has said existing permits would be honoured but Murdiyarso said it was unclear if the exemption applied if the firms planned to clear the forest after the moratorium comes into effect in January 2011.

There was a risk that the delayed start date could act as a perverse incentive to clear before 2011.

"It could be 'hurry up, hurry up!'. It's hard to stop people doing that while the chance is still there," he said, adding that industry may pressure the government to be more flexible about the new ban.

"However the institution (implementing the Norway deal) will be directly under the president, so I think there's no reason to doubt they will stand firm." (Editing by Sara Webb)


Miners: Forest Moratorium Puts Projects In Jeopardy

Fitri Wulandari & Sunanda Creagh

Jakarta Globe

4 August 2010

Indonesia. Coal and mining projects with a combined value of $14 billion could be hit by a forest moratorium that would make it harder for them to obtain land-use permits, mining associations warned on Wednesday.

Newmont Mining, BHP Billiton and Freeport McMoRan Copper & Gold were among the companies whose projects may be affected, officials said.

Newmont's Indonesia unit has plans to develop the Elang copper reserve on Sumbawa Island, while BHP Billiton has the Maruwai coal project in Kalimantan and Freeport operates the giant Grasberg copper mine in Papua.

The government has agreed to a two-year ban on permits for forest clearing after signing a $1 billion climate aid deal with Norway aimed at reducing greenhouse gas emissions from deforestation.

A clause of the agreement says permits to convert peatland and forests that have already been issued will continue to be valid.

However, another section says "there will be an assessment of the economic impact and revocation of permission to convert peatland and cessation of issuing new permits."

Priyo Pribadi Soemarno, executive director of the Indonesian Mining Association, said the moratorium would make it harder to obtain forest land-use permits and they risked having their existing permits revoked.

"We support the moratorium but we see an attempt to review permits that have been awarded and this is negative for investment," Soemarno said on the sidelines of a mining seminar.

"This means existing projects will face obstacles to proceed and investment that has been planned may be delayed," he said. "Freeport also may face problem as it still needs to process its forestry permit to develop Grasberg."

Freeport owns 90.64 percent of Freeport Indonesia, which operates the Grasberg copper and gold mine in Papua, while the government owns the rest.

The Forestry Ministry said in February that it had asked Freeport to submit a request to use land in a protected forest area.

President Susilo Bambang Yudhoyono has vowed to cut greenhouse gas emissions by as much as 41 percent by 2020.

Most of Indonesia's emissions are caused by clearing natural and peatland forests, so curbing deforestation is seen as a quick win.

Daniel Murdiyarso, senior scientist at the West Java-based Center for International Forestry Research, said the moratorium could affect many production forests.

"So if your mining concession is intersecting with a production forest then it's likely it will be affected. Most of the mining sector, especially coal, will be affected."

Indonesia has said existing permits would be honored but Murdiyarso said it was unclear if the exemption applied if the firms planned to clear the forest after the moratorium came into effect in January.


Indonesia May Cancel Permits To Save Forest

Sunanda Creagh and Neil Chatterjee

Planet Ark

19 August 2010

Indonesia's planned moratorium on the clearing of natural forest from 2011 may lead to the revocation of some firms' existing permits and will slash the size of a giant food estate, said the official in charge of the scheme.

The two-year moratorium, agreed under a $1 billion deal with Norway to curb greenhouse gases from deforestation, has created uncertainty among investors in plantations, timber and mining, who fear their expansion could be stymied.

Kuntoro Mangkusubroto, head of the presidential delivery unit, told Reuters the moratorium could also extend beyond two years, given that President Susilo Bambang Yudhoyono was determined to protect the country's extensive tropical forests.

"Climate change is a real problem for the world and for a developing country like Indonesia. Well this is a new agenda and I believe we have to change the way we think about development," said Mangkusubroto in an interview.

"Parallel to that, we cannot neglect the welfare of the people," he said, adding that strong economic growth of 7 percent was still possible while protecting nature.

Plantation and mining firms have opposed the moratorium, which could slow the expansion of palm oil firms such as Astra Agro Lestari and delay coal and mining projects worth $14 billion by the likes of BHP Billiton.

"It all depends on how many licenses someone has already, and whether they are affected or not depends on the type of licenses that have been issued," Mangkusubroto said, adding that compensation could come in the form of land swaps.

"There might be opposition because, for sure, there will be industries affected," he said. "We are just controlling the way they utilize the forest."

Land Challenge

One casualty will be the Merauke food estate in the easternmost Papua region, which he said will be cut to around 350,000-500,000 hectares from an initial plan for 1.2 million, partly because carbon-rich peat lands had been found there.

Investors in Merauke include Singapore palm oil giant Wilmar and Indonesia's Medco.

Mangkusubroto, who is meeting Norwegian officials this week, said the scheme was still on track for January 2011, even though the two governments have yet to clarify their definition of natural forest and exactly what a moratorium will mean for permits.

For now, he could not be specific on how much of Indonesia's roughly 120 million hectares of forest would be included under the moratorium. He admitted that enforcing the scheme -- given illegal logging is rife -- was another problem.

Mangkusubroto said a multilateral agency such as the World Bank may oversee the $1 billion, most to be given by Norway after emissions reductions have been proved, which would reduce the risk that corrupt officials would siphon off funds.

The moratorium could also derail prospects for infrastructure project such as toll roads if they affect natural forests.

Mangkusubroto said a government land acquisition bill was unlikely to be approved by parliament before next year, later than hoped for given poor infrastructure is a key deterrent for many foreign direct investors in Southeast Asia's top economy.

(Editing by Sara Webb)

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