New School for Engineers [Coal Asia Vol 43]
A New Mineral Policy – It’s Our Future.
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. The authors web site is www.ianwollff.com
Ir Budi Santoso recently highlighted that IAGI and PERHAPI have been asked by the minister of mineral resources to provide input towards the preparation of a new mineral and coal policy.
The new mining policy is designed for all Government departments to be guideline for the mineral and coal sector for the next 5 to 50 years. This article provides one input from an “old hand” that has worked more than half his life in the Indonesian mineral and coal industry, and more importantly is wholly committed to the advancement of the Indonesian geological profession and the uplifting of all Indonesians throughout the diverse archipelago. This article is designed to encourage all stakeholders to take this opportunity to contribute further by sending suggestions to the IAGI / PERHAPI’s email to sekretariat.perhapi@gmail.com
The Fundamentals.
The foundation of past policies is derived from the Constitution, wherein all minerals and coal are placed in the ground for the benefit of the people, and the National Government manages such resources on behalf of the people. In the past, the Government acknowledged that it did not have the recourses to carry out this commitment, and called upon the private sector of local and foreign parties to assist the Government in the development of the mineral and coal sector. This development policy was highly successful with the Contract of Work (COW) and later the KP / IUP (Ijin Usaha Pertambangan) systems, while the State Owned Enterprises (SOE’s) also contributed.
The future mineral and coal policy should take great care to retain the proven policy aspects of contract certainty and underlying good business principals that are fundamental to the success of the mineral and coal industries.
Today’s Outlook.
The 2009 mining law acknowledged the Governments ongoing policy to call upon the private sector to be the principal party to develop the mineral and coal industries, and reconfirmed the principal of involving both national and foreign parties to invest and participate in Indonesia’s development. However the latter implementing regulations have lead the private industry to loose confidence in the industry with a) twisting the ownership bias towards a stronger national presence, b) endeavors to “force” the private sector to implement the local development of downstream processing, c) issued the implementing regulations with subsequent corrections due to legal challenges etc, and d) extended renegotiation of the COW system has added to the division between the Government and the private sector. The Government has yet to demonstrate that it adequately cares for all Indonesians in the exploration and mining sectors, for example the concern over massive job losses in the bauxite or nickel mines seem to have been brushed aside by the Government. Recently the Government has returned to a more consultative approach, wherein the government responded to the coal industries objection to changing the royalty bases and reclassifying the geothermal industry etc.
The successful development of the mineral industry has also lead to the development of many professional and industry associations that represent the divergent mineral and coal communities. Other Government departments have also made impositions on the mineral and coal industries, including forestry, spatial planning, education etc.
The future mineral policy should take great care to retain a significant element of open consultation between a wide section of the industry and the various government agencies.
Tomorrows Outlook.
Predicting the future is not so easy, wherein we may look to other countries to learn from their mistakes and experiences, and apply a new mineral and coal policy in a manner suitable for all Indonesians.
The previous Governments adopted the “guided democracy” outlook that may now be replaced with “the people’s rights” approach. The people’s rights include an expectation that government parties charged with the development and implementation of the laws shall be held accountable to the public. We have seen the government’s approach to industry change from a “win-win” to a “stick” approach, with the introduction of selected fines and jail terms for negligent tenement owners. The future mineral policy may see further development of the “stick” approach applied to government agencies, perhaps focusing on demotions and dismissals for not meeting KPI’s.
The Indonesian mineral industry has seen a prolonged period of growth, leading to a mature mining industry. There are clear signs that the Government is expecting this growth to slow and shrink. The Government is trying to anticipate this trend with some new conservation policies. However these policies are untested and some similar policies in other countries failed with immense negative impacts on their society. The new mineral and coal policy may need to more carefully and openly analyze the direction it steers the industry, with the publication of “white papers” on policy and regulations, and allowing for more public review and consultation.
Regional Autonomy is here to stay. The Central and District Governments have been engaged in an ongoing struggle for control over policy and implementation since independence. This conflict is continuing, for example the Central Kalimantan refuses to allow coal to be transported to East Kalimantan. In the future Sumatran mine mouth power stations may “turn of the lights in Java” as part of this ongoing competition for development, or Papua may demand copper concentrate can only be smelted in Papua. Indeed the new Nationalistic trend of controlling mineral exports, and demanding process factories be built, is giving further direction to the Districts to adopt similar outlooks to safeguard their own future development. The new mineral and coal policy may need to consider long term policies to ensure an integrated Indonesia.
As countries develop beyond the “middle income gap” their governments tend to withdraw from participating in industry. Indonesia is following this path with the first step of the Indonesian military withdrawing from the timber and other industries, to focus on its core activity of providing a secure Indonesia. At independence, Indonesia nationalized a number of significant Dutch mines, resulting in State Owned Enterprise (SOE’s) large mines in the petroleum, coal, tin, gold and later nickel industries. Having the Government both as the policy / law maker and SOE’s following such laws may lead to a conflict of interests. We have seen Russia and China move towards privatization of their mineral industries. The new mining policy may consider further privatization of the mineral and coal SOE’s as part of the countries maturity process.
The Mines Department has unfortunately been over shadowed by other departments. Exploration and development has often been approved by the Mines Department, but effectively stopped or crippled by the Forestry Department. The Government has separate ministries to control space (satellite parking) flights of commercial aircraft, forestry for the surface, but the Mines Department is responsible for what is below the surface. Explorers and miners are required to prepare environmental reports to study their impact on the surface biosphere and people, wherein in most cases exploration activity has a similar environmental foot print as a passing aircraft. It is clear that a new mineral policy should “take back” a degree of control on allowing geological surveys and mining to be undertaken. Perhaps the new mining policy can go one step further and place impositions on the Forestry department and forestry / plantation companies to compulsorily undertake detailed geological surveys (submit results to the government) to ensure they are not obstructing the Indonesian people of potential sources of mineral and coal knowledge or wealth that the Indonesian people are entitled to.
The Mines Department has shown glimpses of not being able to cope with the expanding mining industry, and we may assume this may be in part due to manpower and funding limitations. Private industry also is dependent upon the available avenues and willingness of funders to participate in the Indonesian mineral and industries. In today’s financial world, transparency, process and accountability are essential. Indonesia has started down that responsible path with compliance with EITI, adjustments to the accounting codes and corporate responsibility etc. The new mineral policy needs to consider further these Government and industry funding needs.
Governments can plan policies having a reasonable understanding of state assets. Having a reliable measurement of the known mineral and coal resources requires an improvement in the collection of geological and mining reports. Indeed such reports are a form of state asset, and their loss from storage may represent a state loss, being a criminal offense. Industry and Government planning also require a more detailed understanding of Indonesia’s geology, wherein a 1:50,000 national mapping program is called for, including all forestry & plantation areas. It is normal for mature Governments to set long term scientific goals and develop specific programs with budgets and schedules for their undertaking. The new mineral policy needs to propose further development of Indonesia’s geological knowledge, and for a more transparent access to Indonesia’s geological data base.
Indonesians growing middle class and scientific communities involvement with geology is increasing. The stability of land for building or danger from mud slides is well known. Earthquakes, tsunamis, volcanoes are increasingly becoming a popular international study focus. There is an increasing trend for the public to become involved with geo-tourism, and scientific research and conferences on geology or mining have become an important for the community. The new mineral and coal policy needs to consider the wider scope of a more aware people’s involvement with geology and mining.
The popular growth of the exploration and mining industry and the affiliated industries of bulk mineral transport, marketing and administration etc, have generated a significant pool of engineers and a responsible work force. Universities and colleges have also grown to meet the youths desire to enter and make careers in these professions and industries. The recent raw export ban and introduction of operating efficiencies have seen a significant downturn of career opportunities for such engineers and work force. Indonesia’s universities, youth and work force are still expanding. The new mineral policy must not simply assume such Indonesians might find work or careers in other fields, but should plan for the future workforce in the minerals industry.
There are a number of NGO’s that are anti mining and a number of Districts that have introduced policies to exclude exploration and mining. This trend against responsible development should be countered. For example, Districts that ban exploration and mining are forgoing their constitutional rights to derive benefits from the minerals placed in the ground (and other Indonesians are also deprived from their indirect share of benefits), thus the Government may exclude such districts from any and all funds derived from minerals in other parts of Indonesia. The new mineral and coal policy needs to consider an active public education and promotion program.
Since pre colonial days Indonesia was a renowned international trader. The ASEAN free trade agreement is a more recent reflection on this history of Indonesia’s development through international trade. Indonesia’s trade has developed in conjunction with a policy of improving self reliance, first on rice and then on iron and other metals. However Indonesia’s recent raw export ban, and the potential to limit coal / energy exports must be of concern to Indonesia’s trading partners, and has contributed to the alienation of neighbouring countries. The new mineral policy needs to consider both domestic development objectives and sustaining a healthy international trade for Indonesia’s balance of payments and international good will.
Indonesia has not opted for the creation of a sovereign wealth fund to invest in Indonesia’s long term future, but instead has invested profits from mining and coal directly back into the development of Indonesia. Communities that can focus wealth to create economies of scale and promote research are communities that can move forward. Conversely, the conservation of mineral and coal resources will only allow the status quo to continue and may ultimately lead to a shrinkage of Indonesia’s development. To ensure the minerals and coal that underpin Indonesia’s development continues, then the new mineral and coal policy must promote exploration and streamline the path to production. The new mineral and coal policy should ensure that the wealth so generated is invested wisely in Indonesia’s future.
All countries laws create complexities to ensure people, companies or administrators follow the intent of the law, and not seek short cuts or ways to circumvent the laws. Unfortunately the unintended consequence is often that good compliant law abiders find the laws a serious imposition on their business while poor law enforcement allows the less compliant to make easy profits, and sometimes leads to corruption. The new mineral policy should consider the imposition upon moral compliant parties along with an improvement of policing the regulations.
Conclusion.
The Indonesian mineral and coal industries are an integral part of Indonesia’s ongoing long history, wherein the new mineral and coal policy must preserve, and proudly carry, this aspect of Indonesia’s culture through the 21st Century.
Kartini is often viewed as one of Indonesia’s modern founders for the importance of high moral values. We hope that those developing the new mineral and coal policy will look beyond their personal motivations and build upon their deeper moral values, for the benefit of all law abiding Indonesians.