MAC: Mines and Communities

Mining receives unusual attention in Indonesia

Published by MAC on 2014-04-23
Source: Tempo, Mongabay, Reuters

Indonesia to make it even harder for foreign miners - Russell

Clyde Russell


23 April 2014

LAUNCESTON, Australia - Indonesia's decision to start cancelling investment treaties with 62 countries has passed with little comment, but the move may have a greater impact than the recent banning of mineral ore exports.

Indonesia last month kick-started the process of terminating all of its bilateral treaties by notifying the Netherlands that its agreement to protect and promote investment would end in 2015, and signalling that the others would end as soon as possible.

The agreements, which are common between states, protect the rights of investors in each other's country, and typically include clauses about fair treatment, no expropriation and guarantees that profits can be repatriated.

Most importantly for many investors in countries like Indonesia, with its patchy record on legal certainty, is the right of appeal to the Washington-based International Centre for Settlement of Investment Disputes (ICSID).

Among the countries that have treaties with Indonesia are major foreign investors including China, India, Australia, Britain, Singapore and Russia. However, the United States and Japan are among nations that don't have agreements.

Why would the Indonesian government seek to end agreements that were designed to foster foreign investment and economic development, as well as protect Indonesian investments abroad?

The main argument seems to be that their time has passed and they belong to an earlier era when foreigners feared assets would be nationalised.

The treaties are seen favouring foreigners over domestic investors, something at odds with the government's drive to ensure greater control of Indonesia's mineral resources.

This can be seen against the backdrop of a raft of changes to Indonesian law and regulations, which among others enforced a ban on exporting unprocessed ores, mandated the building of smelters and introduced laws to force the sale of stakes to locals of foreign-owned mines.

Indonesia is the world's biggest exporter of nickel ore and supplies about two-thirds of top buyer China's imported bauxite, the raw ingredient for making aluminium.

London-traded nickel has gained almost 32 percent so far this year after the export ban came into force in January, with China's imports of nickel ore from Indonesia plunging 79 percent in March from a year earlier and bauxite slumping 86 percent.

Indonesia is also the world's biggest exporter of thermal coal used in power-stations, but the impact on coal has been muted so far as it isn't subject to a ban, but foreign owners will be caught by the need to divest.

The problem for many foreign investors is that they will doubt whether the need for investment protection has passed.

I doubt that any investor in the Southeast Asian nation would privately agree that his company would get a fair hearing in the legislative and court processes, especially if the opponent was the government or a well-connected local.

It seems that the decision to end investment treaties is part of the ongoing process to ensure that Indonesia's resources are controlled by the government, and/or domestic investors.

Churchill Dispute a Trigger?

The dispute between the government and London-listed Churchill Mining provides a short-term impetus for the end of investment treaties.

The miner won the first round of its dispute over coal assets with the Indonesian government in February at an ICSID tribunal.

The Jakarta Globe reported on Feb. 28 that the government will appeal the decision and it doesn't want to face the risk of paying compensation to Churchill, which the newspaper said could be as much as $1.05 billion.

The risk for the Indonesian government is that it could be hit with dozens of cases in the ICSID from disgruntled foreign investors.

It's not hard to imagine Indian or Australian coal miners challenging the rule that they have to sell half of their stake in a mine once it has been producing for 10 years.

Ending the investment agreements will mean foreign companies having to take their chances in Indonesian courts, a far better prospect for the government.

However, cancelling the treaties will take time, as some run for extended periods and have additional protection clauses once notice of termination is served.

This means the Indonesian government may well have to deal with foreigners in an international tribunal, but it's a safe bet they will play for time if this is the case.

The trend still appears clear, Indonesia is doing all it can to get control of its natural resources from foreign investors.

(Editing by Joseph Radford)

Mining Activity Damages Environment in NTB

By Anwar Maga


12 April 2014

Jakarta - The environmental damage done by the type C mining activity in West Nusa Tenggara (NTB) has reached more than 200 hectares. This was reported by the National Defense Agency (Lemhanas) who is conducting research on the effects of the mining.

"Around 200 to 255 hectares of land have been damaged by the type C activity (sand and rocks)," said the Head of NTB Public Works Agency, Dwi Sugiyanto, in a meeting with Lemhanas in Mataram yesterday. The Lemhanas team consists of eight people, which is coordinated by Inspector General Boy Salamuddin, former Head of Police International Relations.

The meeting was led by the Governor of NTB and attended by Brigadier Gen. Pol. Moechgiyarto, Commander of Military Unit 162 Wira Bhakti Colonel Kuat Budiman, CSR General Manager of PT Newmont Nusa Tenggara (PTNNT) Rahmat Makassau, and the Regent of West Sumbawa KH Zulkifli Muhadli.

Dwi said that the effects of the excavation must be dealt with together. He also said the mining in the area produces four tons per annum, excluding the gold mine of PTNNT. "If we let it be, it will ruin the environment even further," he said. Dwi also said the mining of coral rocks which has went on for years in NTB is also a potential threat.

Seven Watersheds in East Kalimantan Are Critical

By Firman Hidayat


8 April 2014

Samarinda - Seven out of 31 watersheds in East Kalimantan and North Kalimantan provinces are in critical condition.

The evaluation is based on land studies, including ecology issues and socio-economic development index of the people around it," said Sigit Hardwinarto, an environmental researcher from Mulawarwan University, last weekend.

The seven watersheds are Mahakam and Kandilo in Paser Regency, Manggar in Balikpapan, Bontang in Bontang City, Sangatta in East Kutai Regency, Tarakan in Tarakan City, as well as Nunukan in Nunukan Regency, North Kalimantan.

According to Sigit, environmental damage around the watershed could cause floods in Samarinda and Kutai Kartanegara. Floods will worsen during high tides and if the Karang Mumu River, a tributary of the Mahakam, can no longer accommodate the water flow. "At the upstraem of Karang Mumu River, much of the land have been converted to mining area," he said.

East Kalimantan Governor, Awang Faroek Ishak, admitted that the Mahakam watershed was damaged. "I have issued a mining and plantation moratorium so its use can be better regulated," he said yesterday. A forest concessionaire, Achmad Husri, said that since the 1980s and 1990s, the forestry industry in East Kalimantan and North Kalimantan has been suffering due to a decline in production. As of today, out of 100 forest concessions in East Kalimantan, only around 20 are still running.

Forests in Indonesia's concession areas being rapidly destroyed

By Rhett A. Butler


10 April 2014

Forest clearing within areas zoned for timber, logging, oil palm, and mining accounted for nearly 45 percent of deforestation in Indonesia between 2000 and 2010, finds a new study that examined forest loss within industrial concessions. The research, published in the journal Conservation Letters, used a combination of satellite data and concession data to link specific activities to forest cover change.

It found that of the 14.7 million hectares of forest cleared in Sumatra, Kalimantan, Sulawesi, the Moluccas and Papua during the 2000's, 6.6 million hectares occurred within industrial concessions: 1.9 million hectares in fiber plantations; 1.8 million ha in logging concessions, 1.6 million ha in oil palm concessions, 0.9 million hectares in concessions with overlapping zoning, and 0.3 million hectares in coal mining concessions.

The study did not assess the roughly 55 percent of deforestation that occurred outside concession areas, but oil palm development, illegal logging, industrial and smallholder agriculture, other types of mining, and fire would account for the majority of that loss.

Geographically, 48 percent forest loss within industrial concessions occurred in Kalimantan, followed by Sumatra (32 percent), Papua (12 percent), and Sulawesi (5 percent). Lowland forest accounted for three-quarters of forest loss in industrial areas. Peatlands conversion amounted to 21 percent of total loss. The study also looked at greenhouse gas emissions from concession development.

Pulp and paper plantations were the single largest source of carbon emissions during the period, accounting for more than a third of total industrial emissions. Oil palm (28 percent), logging (22 percent), and mixed concessions followed. Drivers varied dramatically by island: in Sumatra fiber plantations amounted to nearly 60 percent of emissions, while the palm oil industry in Kalimantan accounted for about 40 percent. Logging concessions were the biggest source of industrial land use emissions in Papua, Sulawesi, and the Moluccas.

While the study assessed what happened in the past in terms of forest loss and emissions, it also provides insight into the potential future of Indonesia's forests, including the extent of forest cover surviving inside and outside concessions.

It found that almost 35 percent of the 77.4 million hectares of forest remaining in Kalimantan, Sumatra, Sulawesi, the Moluccas, and Papua lies within industrial concessions. 70 percent of that is within logging concessions, indicating the importance of these areas in efforts to curtail Indonesia's high level of greenhouse gas emissions, according to the authors.

"Logging concessions retain ~33% of lowland forests (~15.5 Mha) and ~16% of peat swamp forests (~1.6 Mha) in Kalimantan, Sumatra, Papua, Sulawesi, and Moluccas," they write. "Gaveau et al. (2013) showed that logging concessions maintained forest cover as efficiently as protected areas, provided they were not reclassified for industrial plantation development.

A growing number of studies also suggest that selectively logged forests might be valuable for biodiversity conservation. Indeed, well-managed logging concessions might present a realistic and cost effective strategy for forest protection in addition to protected areas."

But developing strategies - and incentives - for maintaining forest cover requires good data. The authors note that is still lacking for Indonesia and call for greater transparency around land use to improve accountability around issues like deforestation and haze. They add that "clarifying land ownership and concession boundaries" would not only help address environmental problems, but "could also help reduce the level of social conflicts with local communities."

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