Local mining and the greatest benefit of the people. [Coal Asia magazine Vol 58]

Local mining and the greatest benefit of the people.

The Constitution reflects who we are.

Each country’s constitution has come into place at different times amid different circumstances. The American constitution was born out of a new settler’s war of independence from the British, and starts with a preamble of “We the people of the United States, in order to form a more perfect Union…” which portrays a concept that the writers are very much a part of the peoples forward looking aspirations. The Indonesian Constitution was developed much later, born out of an indigenous native war of independence and starts with the preamble “Whereas independence is an inalienable right of all nations, therefore all colonialism must be abolished….” At the end of the Indonesian preamble we see the foundation for going forward, “…the Republic of Indonesia which shall be built into a sovereign state based on the belief of the One and Only God, just and civilized humanity, the unity of Indonesia, and democratic life led by wisdom of thoughts in deliberation amongst representatives of the people, and achieving social justice for all the people of Indonesia.” The Indonesian constitution preamble carries a strong sense of its past and a somewhat fatherly statement of aspirations. This fatherly outlook by government was pronounced in the Soeharto era with its “guided democracy” until the children of 98 brought in a new era of reformation. To this day the outlook of the government continues to carry a sense of the past, and continues to be lead by wisdom of thoughts by Government, rather than a “we the people” approach of a wider direct consultation with the people.

The National Economy.

The Constitution Chapter 14, Article 26 on the National Economy and Social Welfare states “(1) The economy shall be organized as a common endeavor based upon the principles of the family system. (2) Sectors of production which are important for the country and affect the life of the people shall be under the powers of the State. (3) The land, the waters and the natural resources within shall be under the powers of the State and shall be used to the greatest benefit of the people. (4) The organization of the national economy shall be conducted on the basis of economic democracy upholding the principles of togetherness, efficiency with justice, continuity, environmental perspective, self-sufficiency, and keeping a balance in the progress and unity of the national economy. (5) Further provisions relating to the implementation of this article shall be regulated by law”.

The Constitution is recognized by many as being an inspirational and guiding document, wherein there is a healthy ongoing debate about interpreting many aspects of the Constitution. Indeed some recent Constitutional Court decisions have brought greater focus on the aspect “under the powers of the State” with the two main outlooks of the people being A) the State should provide laws to manage the industries but not necessarily own the industries, or B) that the State should own and manage the industries. The other significant public debate is in regards to the aspect “greatest benefit of the people” wherein the concepts of nationalization of industry clash with free enterprise. There statistics about the number of people directly and indirectly engaged in the exploration and mining industry are uncertain, however it would seem to this author that there may be similar numbers engaged in the formal and local mining sectors. It is likely the number of government employees involved with managing the formal sector far outweighs those involved with the management of the local mining sector, with the result that the effort to raise fees and manage the local mining sector is not optimized. The constitution’s concept of “people” is assumed to include citizens outside the mining industry, and so the impact and benefits that flow from exploration and mining are to be shared with the wider community. Just how much profit remains with the explorers and miners, and how much is drawn off as taxes, royalty and fees is a careful balance, as too little return for the mining industry will see industry downturn and ultimately no further benefit for the people. Perhaps in difficult times the Government may be obliged by the Constitution to ensure the long term greatest benefit of the people is served by the wisdom to provide public stimulus to the exploration and mining industry. NGO’s such as EITI have been developed to ensure the implementation of “the greatest benefit” is transparent, and it is clearly in the greatest benefit to the people that such NGO’s are fully supported.

How far have we come ?

In 1975 I worked and traveled extensively about Indonesia, from Lake Toba in North Sumatra to Rantepao in Sulawesi. At that time I noticed old women and young children on the side of the road breaking river rocks with a small hammer and rubber ring holder. More recently I have seen many small mechanical operations of excavators, crushing and screening plants to produce crushed road rock. However in 2015 I holidayed in Lombok and again saw old women and children by the road side breaking rocks as was done in 1975. Local mining is clearly a part of Indonesian history, and is likely to continue well into the future.

Local Mining.

In 30 years of exploration around much of Indonesia I have seen first-hand many and varied forms of local mining. Local mining often takes the preindustrial form. For example, around 2005 during the iron ore rush in South Kalimantan I saw people picking up lumps of iron ore rocks from the fields and creeks, forming small stacks beside the road for sale to collectors who trucked the ore to moderate sized central stockpiles and on-sold them to exporters who created shipment sized lots for export. Once such easy surface pickings were taken, then the rush faded. In other occasions I have seen the local miners make use of new but simple technology. For example the traditional gold panners of Kalimantan were overtaken by mobile pumps and wooden sluice boxes. Manual breaking of gold bearing rock in Java now uses electric miniature ball mills (glondong). The tedious and highly skilled panning of fines to produce a clean bar of gold has been replaced by quick and poisonous mercury amalgam.

The most common local mining commodities are sand / gravel, gold and tin, with coal, oil and other minerals including zircon, iron ore, manganese, diamonds and various gemstones. The nature of mining varies from small open pits, shafting, addits, slucing and diving. Processing typically uses screening or sluce box (palong) and small trommels (glondong), wooden pans (dulong) but I have also seen giant home made stamp batteries. Many, but not all, of these mining and processing activities are conducted in an unsafe and environmentally damaging manner, though such negative aspects can be mitigated with good management. Local mining can perform the world wide function of “prospectors’ and thereby provide a significant guide to formal exploration and mapping programs.

Terminology for small scale mining varies according to the users outlook, “artisan miners” are typically for sociologists or those who have some sympathy towards such activities, “peoples mining” reflects a somewhat left wing political expression, while “small miners” is perhaps a more of an engineering term, “illegal miners” for those who have some objection to such activity, but I will use “local miners” to reflect an on-the-ground approach.

The mainstream TV media is now picking up on illegal tin mining in Banka, and the popular press has stories on the revived trend of local mining for semi-precious rocks for men’s rings (batu aki). Small scale mining sometimes encroaches upon, and is the cause of, conflict with formal mining, however there are cases where local mining has been integrated with responsible mining for a win-win situation. Local mining tends to be carried out in an open manner and so it may be expected that the various government agencies could readily monitor such activity. Local mining is clearly an integral part of the Indonesian mining sector wherein the concept of “greatest welfare of the people” warrants a closer look.

Local mining is typically an opportunist activity undertaken by rural people who live in the proximity of the mineral or coal resource to supplement their cash income. Occasionally the success of local mining can incite others from far away (even from other Islands or other countries) to get in on the “rush”. In essence most local mining for minerals tends to be limited, dependent on ease of extraction and processing, commodity buyers and relationships with local land owners and officials. However there are notable cases where local mining can make a serious negative impact on the commodities market and subsequent royalties delivered to the state. In early 2000 the local mining of coal in South Kalimantan grew at an incredible rate thanks to a combination of plentiful cheap mining equipment from the failed one million hectare rice program, weak local administrative controls and eager independent coal buyers. The resulting in coal prices plunged to below $20 per ton, squeezing formal producers profits and diminished the government royalties. Apparently the Indonesian zircon market in Kalimantan also went through a similar phase of high production around 2008, where the informal market impinged heavily upon the formal industry. More recently the Jakarta Post (26 June 2015) reported on “RI begins crackdown on illegal tin miners” and quotes President Jokowi “Tin prices have been low because of an oversupply, partly as a result of an increase in illegal tin from Banka Billiton”.

Local mining and the greatest benefit of the people.

The IRGSC interim report “Understanding risks and benefits of informal (Artisanal small-scale) mining of manganese by peasants in Indonesia; A study on resource management and livelihood options in Kupang and TTS, West Timor, NTT by Maxi Julians Rihi Dara (Nov 2014) is one of the better put together reviews on local miners. In essence the report finds “that small scale mining has the potential to provide benefit for local people if it is managed sustainably. Therefore, immediate policy interventions to ensure fair price, legal certainty, and community empowerment are necessary to mitigate the negative environmental and socio-economic impacts.” Some of the earlier reference material cited in this report may now out of date, wherein today some observers report that small scale mining for manganese in Timor has virtually stopped due to the governments effective raw ore export ban. The report gives a good outline of the commodity chain, outlining the different types of production based on property rights, local miners, brokers, transport and exporters. The report focuses on the land owners and miners and does not delve deeper into the spread of benefits that the transporters and exporters, who are likely to have to “share” with other parties. For example the transporters are likely to need special permits to transport ore on public roads, and port mafia’s operational mode to extract extra fees is common throughout Indonesia.  The reports concept of benefits is twofold. “The significance of the economic benefits derived from small scale mining can be identified in their capacity to fund their basic needs such as food, water and sanitation, adequate housing and basic education”. “Although the local Government considers manganese mining as a source of income for developing the local economy, there are no tax revenues or formal retributions that can be derived from small scale mining…”

The Mining Law (No 4, 2009) clearly recognizes the local mining industry with Articles 20 – 26 setting out the Peoples Mining Area (WPR) and Articles 66 – 73 setting out the peoples mining license. Article 73 requires the Government of the regency/municipality to carry out exploration and other duties. At the time of this law’s issuance there was a flood of local government budget applications that were apparently universally rejected by the central government urging the people’s miners to seek private finance. The mining laws chapter on State and regional revenues (Article 128 – 133) refers to IUP & IUPK but is silent on WPR. Such lack of taxes, royalty and fees would appear to be not compliant with the Constitutions requirement to provide benefit to the broader non mining “people”. Perhaps the current considerations to revise the mining law may consider A) ways for local miners to more readily access finance, B) for the Government to transparently implement its responsibilities towards local mining and C) pay taxes and royalty.

There are a number of parallels between local miners and farmers in relation to the water law No 7 of 2004 that was discarded by the recent constitutional court decision of February 2015. The arguments presented in this water law constitutional court challenge included reference to the Constitutional rights (Article 28D) “Every person shall have the right of recognition, guarantees, protection and certainty before a just law, and of equal treatment before the law”. Wherein the arguments highlighted the inequalities where companies are required to pay for use of water, (formal miners pay royalty) but farmers have rights to water with no fees (local miners have no royalty commitments), which was admitted by the expert witnesses as a form of “positive discrimination” and thus contrary to Article 28D of the constitution.

Constitution argument for the government to build smelters.

Article33 paragraph (3) of the 1945 Constitution states, “The earth and water and natural resources contained in it are controlled by the state and used for the greatest welfare of the people.” The most recent mining law (No.4 of 2009) includes the category of Peoples Mining License (IPR) to provide a structure to accommodate small scale mining with limited extent and investment. The Law 4, 2009 states that the framework of the mining law is to support national development which is sustainable, while the government’s objectives in mineral and coal management includes “to increase the income of local community, the region, and state, as well as to create job opportunities for the people’s welfare in its broad sense.” Indeed the mining law has numerous references wherein the Mines Department is to support responsible local mining.

Dr.Ahmad Redi S.H. in his expert statement to the Constitutional Court (Decision No.10/PUU-XII/2014) supporting the government’s stance on an effective raw ore export ban explained his concept of the 1945 Constitution Article 33 paragraph 3 that “controlled by the state” is the soul mastery over mining and “the greatest welfare of the people” is the soul of the objectives of the mineral and coal mining in a business activity or a concession. We can see in the IRGSC and similar reports that local mining is clearly a commercial activity, and may be considered to be included in the concept of “the greatest welfare of the people”. Dr A. Redi goes on in his defense of the smelter program “if the management and purification is not done in the country, then this will be an abuse of the Mining Law and may also be an act of harassment on the Indonesian people because the Mining Law is the will of the people of Indonesia”, and “Political law is based on the concept of the greatest happiness of the greatest number of people” (Google translate).  It would seem if we follow Dr A. Redi’s logic, and similar pro government Constitutional Court expert witnesses statements in support of the smelter law, then this suggests there are legal and moral grounds for the Government to build smelters to accommodate local miners and others.

Not only money.

The “greatest benefit for the people” is not only about the Government seeking more money. The state oil company Pertamina has a long and ongoing history of providing fuel subsidies to the public rather than optimizing profits and ensuing taxes. The greatest benefit also comes in the form of a more responsible and sustainable industry, with formal mines having a high compliance cost to safeguard the environment and workers well being, with a subsequent reduction in profit taxes. Local miners tend to increase the cash economy of the immediate rural and local economy, but the greatest benefit of the people is not shared with the wider populace.

Perhaps the Government can develop suitable content for the local miners on safety, environment on its e-government web sites, to target the 70% of hand phone owning Indonesians, as part of the Mines Departments commitment to a pro-poor program.

Conclusion

The present review of the mining law may be encouraged to change its outlook, wherein the concept of “wisdom of thoughts” now has the technology and growing educated populace that can accommodate more of a “we the people” approach. This may be implemented through the further development of the e-government web sites, to become a more interactive  two-way mode of communication with the people that are spread widely across the Indonesian archipelago.