Government Obligations on Exploration and Research – What To Do! [Coal Asia Vol. 36]

Government obligations on exploration and research – what to do!

By Ian Wollff

The author is an expatriate principal geologist of about 28 years experience in the Indonesian exploration & mining industry, and is employed by an international consultant company.

 

1. Introduction

The new Mining Law (UU 4/2009) provides for the government to undertake exploration and research, however until now this aspect of the law appears to lack significant implementation. There have been some suggestions to apply a government program of exploration to the coal industry in a manner similar to the oil & gas industry. This article argues against such an approach, and suggests implementation could be better applied through restarting the National geological mapping program , at1:50,000 scale, for the broader benefit of the people.

2. The New Mining Law and Exploration

Article 6 of the new Mining Law (UU 4/2009) states that the government has the authority to make laws and manage the nations mineral and coal resources, define mining areas, grant and manage the exploration and mining permits, to raise revenue, etc, including point P – “To conduct inventory, surveys, and research as well as explorations to find data and information about minerals and coal to be materials for planning Mining Areas and State Reserve Areas”; and Point Q – “To manage information on geology, information on potential mineral and coal resources, and information on national-level mines”. This is followed up in Articles 7&8 wherein the Provincial and District governments are authorized to manage such inventory, surveys research and exploration plus manage the information on such geological resources, and to deliver such information (plus production and sales data) to the Minister and Governors.
Furthermore we have seen the courts clarify the New Mining Law’s article 14, wherein the Districts are to first determine the exploration and mining zones, and then have such spatial zoning approved by the House of Representatives.

3. Should the Government enter the coal exploration industry ?

The cover story of the Coal & Minerals Asia magazine (Vol. 34) quotes the chairman of the Indonesian Geologist Association (IAGI), Rovicky Dwi Putohari as preferring the State to participate in coal exploration, in a manner similar to the oil industry, and then appoint private enterprise to undertake the production phase. He goes on to postulate setting up a fund of public money to pay for such exploration. The article looks more deeply into the concept of State exploration. Recent correspondence with Ricky found this article (draft) “an interesting alternative view and perspective about the coal industry”, and “agrees that the program for geological mapping (1:50,000 scale) is an important bases of mining exploration”.

There are several significant differences between the oil & gas industry and the coal industry. First is that the oil & gas industry is awarded tenure and managed by the Central government, while the coal industry is presently awarded tenure and managed by the Districts. The Central government receives a substantial income from the oil & gas industry that can justifiably be reinvested nationally. Those Districts that receive a royalty from coal mining may find that sufficient coal exploration has already taken place by the existing concession holders, as is required under the IUP obligations, and that further exploration is not warranted. However the non coal producing Districts generally do not receive any significant income from coal production, and thus places a financial hurdle for such non coal producing Districts wishing to enter this coal enterprise. Second the oil & gas industry prioritize prospective areas on a nationwide bases, and may pass over low priority targets as being too risky. However each District would prioritize within a much smaller area, with some Districts having only high risk targets available to consider. Thirdly, should the Central government be called upon to provide coal exploration funds to the Districts, then assigning and approving such funds to each District may be very difficult to manage in a fair and even manner.

When the new Mining Law was issued, there was an initial flourish of Districts seeking funds from the Central government to comply with these Article 6 exploration and research obligations. It is apparent that the Central government has not authorized any significant funds towards coal and mineral exploration. This may be because the Central government prefers to spend its budget on more direct application for the long term benefit of the community, such as schools, roads or perhaps even new uniforms for government employees! It is well understood within the industry that exploration is a high risk enterprise that involves much capital and long lead times. The consequences for a District government head geologist to formulate and implement a costly exploration program that did not yield a viable coal or mineral mine may be considered by some political parties as a misuse of State funds and border on criminal liability. Indeed we have seen such similar accusations by some parties when PLN purchased some diesel generators to provide electricity to a community to fill a supply gap until a coal fired plant was completed. The oil & gas exploration success rate is now considered in the order of 1:10. However coal exploration is generally considered as having a success rate of about 1:30 and minerals 1:100 or more. With such poor odds it would seem that only about 10 Districts in all of Indonesia may have success. This means most Districts would have failure, leading to financial losses for many Districts – money that could alternatively be used for enterprises with a more predictable outcome of contributing towards the communities well being.

Should Government funding be directed towards mineral and coal exploration, then there is the potential for such funding to be spent on concessions friendly to selected elite parties, and away from their competition. Such a practice may cause community unrest. Developing and implementing a mechanism to counter such potential bias may take more effort than is involved in the exploration program itself.

PT. Bukit Asam, PT. Timah, and PT Aneka Tambang are examples of Nationalized Dutch enterprises that are now publicly listed companies. These companies have an increased responsibility to their shareholders that not only includes the Government of Indonesia, but also to private investors who are concerned with market forces. A recent trend for these state controlled companies is to change their green-field exploration risk profile from Indonesia based to other countries, and consequently they plan to spend more of their risk money outside Indonesia. One could pose the question – if these state companies, that understand their industry well, do not want to invest in more Indonesian green-field projects at the moment, then how suitable would it be for District governments to invest their community’s money in such exploration ventures?

The oil & gas industry private exploration programs are lead and implemented by a team of specialist geologists and support staff, complete with well established protocols in safety and management systems. The coal & minerals exploration industry also require specialist geologists and support teams. There may not be enough specialist geologists to allocate one team to each District. Furthermore, the lead time and effort to train such specialists may not be justified. Once the District has been explored for a coal and certain minerals, and the deposits developed into mines, or that no significant deposits are found, then the retention of such specialist geologists within the District may be difficult to justify.Alternatively to prepare such specialist teams on a Provincial bases, and rotate them to each District may not be acceptable for the Districts to have to wait their turn, with potential for disputes over uneven resource allocation etc.

4. What the Districts have

Many Indonesian Districts have recently developed a geological division, with the principal role to monitor the private concession ( IUP & CCOW) geological activities and report to government. This follows similar models in many countries, wherein the work also involves updating the District geological maps and coordinating geological research teams, usually connected to universities. These Indonesian District geological offices typically have very limited funds that in turn restrict their ability to conduct assays or perform modern exploration mapping etc. Many of the coal and mineral future discoveries will require more sophisticated surveys, a deeper understanding of the geological emplacement of minerals and coal, expensive drill programs and larger budgets with corresponding higher risk profiles. The District geological teams may therefore not be Indonesia’s best option to directly undertake industry exploration for coal and minerals.

There are about16 universities that provide geological courses in Indonesia, with only about 5 located outside Java, reflecting the university’s background in relation to the exploration sector. The universities typically have limited funds, and thus the opportunity for advanced students to undertake a thesis on exploration is limited. While universities can contribute, and are encouraged to do so, they are not the only resource that should be relied upon for the timely exploration programs for the development of Indonesia.

There are several government backed research institutions, most notably LIPPI. In the past these institutes have undertaken limited exploration work on government projects and on a contract basis for private coal and mineral concession holders. The possibility of expanding such institutions to cover all of the Districts exploration needs would require significant time to expand their manpower and a large operational budget, which in turn would need to comply with the government’s particular style of complex disbursement procedures.

The allocation of government funds to Universities, research institutes and such may need to consider government protocols, transparency and monitoring issues. Implementation may need to go through some form of bidding process, adding further complexities, increased overheads and delays to the exploration process.

5. The development of national geological maps

Indonesia has a much respected and well used set of geological maps at a scale of 1:250,000. These were prepared by Indonesian geologists working for the Geological Research and Development Centre (GRDC) under the Directorate General of Geology and Mineral Resources. The maps were prepared with reference to the Dutch geological records, and supplemented with numerous regional traverses, complete with whole rock analysis, age dating, petrology and paleontology studies etc. The spatial data sets included much aerial photography and incorporated some geophysics, such as gravity surveys. The maps were issued progressively from the 1980’s until completion in 2000 under the then Minister for Mines – Susilo B. Yudhoyono. At that time there was a popular industry appeal for the expert and well respected geological teams to continue to the next stage of detailed mapping to create a 1:50,000 scale geological map series of Indonesia, to match the Bakosutinal topography series. However the work was abandoned and the GRDC was absorbed into a reorganized Ministry of Mines and Energy. Since the issuance of the 1:250,000 scale geological maps, there have been a number of cooperation agreements with various countries, notably the British Geological Survey for stream geochemistry over Sumatra, and various wide areas of joint survey separately with the Australians and the Japanese etc. There have been several mining booms for coal and minerals (gold, zircon, base metals) that have generated hundreds of hard copy exploration reports and mountains of valuable data, including airborne geophysics. This wealth of data has been provided to the Mines Department in compliance with government regulations. Sadly some of this data is apparently now missing, and one could consider such missing data as “State losses” wherein perhaps NGO’s could seek legal redress – though proving specific lost material to specific government officials would be difficult. Just as the earlier 1:250,000 geological exploration mapping program started with compiling and evaluating the historical data, then it is postulated that a new 1:50,000 geological maps series is in a similar position. Works can be kick started using the recent private concession exploration data and feasibility reports, combined with modern satellite imagery etc.

The proposed District funded regional geological mapping program may NOT be restricted by forestry and other land classification system, as there is no immediate linkage to commercial exploitation. It is certainly the Governments responsibility to research, understand and publish all of the Nations geological character, including that underlying national parks etc.

A review of the present data, including that derived from ongoing concessions, may also stimulate the Districts to be more mindful of properly storing such exploration data, stop the loss of such data (State losses), and encourage the Districts to enforce the concession holders to report more responsibly.Geological reports by the current concession holders are considered confidential and may lead to disputes if the government was to use such data to undertake coal & mineral exploration. However, as the government is essentially the co owner of the concession derived data, it is to be expected that such data could more readily contribute to the development of a new series of National 1:50,000 scale geological maps.

A new set of 1:50,000 geological maps may be funded in a more equitable manner throughout the Districts. For example by publishing regularly spaced traverses throughout the area people can see that each area has received some mapping. The results of such expenditure carry little down side risk, wherein the principal goal is advancing geological information and understanding. Perhaps some economies of scale could be undertaken whereby the Provinces undertake broader airborne geophysics etc.

The proposed new set of 1:50,000 geological maps could take advantage of the new technology. Satellite image interpretation can lead to a more accurate spatial distribution of geological units and be updated from time to time (REDD maps are updated every 6 months) to show approved revisions in District boundaries, geology etc. The new generation of maps should be produced in a digital format, which is now the international norm. Such maps, though at a much larger scale, have already been prepared and submitted to the Parliamentary Commission 7 to support the national spatial planning and the development of mining zones. A set of digital geological maps can be updated from time to time, thus regular coal and mineral exploration does not need to wait till such a new set of maps is complete, and delays and costs in publishing can be avoided. The Province geological agencies can coordinate to ensure consistency across District boundaries, and the Central geological agencies to ensure consistency across Provincial boundaries and national standards etc.

Perhaps the government could speed up the implementation of such a national geological mapping program by nominating a single base map, such as the REDD digital map, and work through some of the existing agencies, such as the Centre for Geological Survey (Pusat Survei Geologi) located in Bandung that functions under the Geological Agency of Indonesia.

6. Geological mapping and the community needs

Such new digital geological maps could also address today’s governments more sophisticated scope in meeting the people’s needs. The detailed maps could be synchronized with other maps relating to spatial planning in agriculture (preference of certain crops to underlying geology / soil/ slope & weather), civil engineering for roads, dams etc, (foundations and source of building materials), better define geological hazards (landslides, flood plains etc), archeological sites, legislated native title forests and biological diversity studies (limestone areas of more interest to bats and snakes etc) and hydrology. The detailed geological maps could also provide an opportunity for broader developments in geology, particularly in defining “geological parks” (Yellowstone in USA), and fossil reserve areas (America has dinosaur parks, while Indonesia has Java man), plus coordinate with other mineral industries now promoted strongly at the District level, including gemstone regions or industrial materials etc.

There are other industries (non exploration) that are required to submit geological reports with their concession applications or ongoing compliance reports. However in most cases – including many forestry concessions – this aspect of their reporting is unprofessional and significantly inadequate. The Department of Mines and Energy (ESDM) may consider drafting implementation rules for forestry, where the negative environmental impact of land clearing for plantations results eroded soils coking and covering small streams that provide windows of the underlying rocks that are exposed by nature for geologist to record through non destructive mapping. Government regulations now determine that plantations may not be undertaken in areas where the peat is more than 6m thick, wherein the ESDM could draft regulations obliging plantation companies to conduct independent geological surveys and receive approvals from the ESDM for compliance. The ESDM may cooperate with other agencies to set geological reporting standards for civil construction where foundations penetrate or disturb the rock beneath the soil etc. All such geological data should be captured and contribute to a new generation of digital 1:50,000 geological maps.

7. Conclusion

To fulfill the government’s legal commitment to undertake geological exploration and research for planning and monitoring activity, the government does not need to undertake coal and mineral exploration itself, but may consider developing a new set of 1:50,000 scale geological maps of Indonesia. Directing Provincial and District geological units to undertake general geological mapping may allow for a more equitable distribution of government funds, human resources, and allow for a measurable and timely result.

Publication (digital) of the detailed regional geological maps may provide a valuable base for the future generations of creative exploration geologists, who may spend new private money and take further risks to discover and develop the potential District coal and mineral resource wealth, or other opportunities for fossil parks etc. Such a proposed regional geological mapping program may be synchronized with associated spatial planning maps that may contribute to a better understanding and interaction with our physical living environment.

Further discussion on when and how the Government is to implement its Article 6 obligations of planning and monitoring exploration is encouraged.