The new mining law which is scheduled to be enacted by the House of Representatives on Tuesday still stipulates the clause most dreaded by mining investors -- the licensing system in general mining and coal (excluding oil, natural gas and geothermal) will be changed from contract of work (CoW) to a system of mining business permits.
The good news is that the new law will not be retroactive to existing mining concessions. They can continue to operate until the end of their CoWs, after which the contractors have to operate under the new system as regulated in the new law.
However strongly opposed mining contractors and potential investors are to the new contractual system, the blunt fact is that the new law, which has been on the House legislation agenda for more than three years, is the mining sector's best legal umbrella that has gained a national political consensus.
We understand the great concern among investors about what they see as a land mine under the new licensing system because of an added source of uncertainty about the permits for each stage of operations.
The CoW concept guarantees the duration of a mining activity from seismic surveying and exploration to feasibility studies, construction and production, as the different phases were all merged together under one contract.
However, under the new system, investors or contractors are required to obtain separate permits for surveys and exploration, a feasibility study and production development.
But the new legislation also stipulates that holders of exploration permits are guaranteed production permits as a continuation of their business activities.
Investors can still see this in a bad light, given the government bureaucracy's notorious reputation, making them vulnerable to delays or bureaucratic corruption.
Another good thing is that the stipulations on the terms and conditions of the permits for explorations and production are so comprehensive and clear-cut that the risk of unnecessary delays or unilateral refusals on the part of the government to grant a production permit after a successful exploration stage is quite small.
The exploration period, for example, is set at a range of between three and eight years and for production between 15 and 40 years, allowing for extensions depending on the category of the minerals.
True, more than anything else, legal and regulatory certainty is vitally important for mining investment because the industry is capital and technology intensive, faces high risks and has a long payback period and operates mostly in remote areas where basic infrastructures are extremely inadequate.
But the new licensing system is only one of more than 170 articles in the new law and most of these provisions seem designed to strengthen legal certainty in the mining industry.
In fact, the new legislation, which will replace the 1967 mining law, will fill in the legal vacuum in the licensing of new mining contracts (excluding oil, gas and geothermal) caused by the introduction of local autonomy in 2001.
No major mining contracts have been awarded after the enforcement of the autonomy law which devolved the authority for awarding mining contracts to regional administrations.
The new legislation clearly regulates the division of authority in the licensing of mining ventures among the central government and provincial and regency administrations, with the delineation of areas opened to mining contractors or reserved for strategic mining area under direct jurisdiction of the central government.
These clear-cut provisions will minimize the risk of disputes between regional administrations and the central government or between neighboring provincial and district administrations. There are also stipulations regarding divestment to national interests by foreign shareholders, local community development and the transfer of business competence to local companies.
At the end of the day, though, the effectiveness of the new law will also depend on the set of government regulations which have yet to be issued to enforce the legislation.
The implementing regulations will govern how the various ministries and the different levels of government will execute their respective functions and responsibilities as regards mining operations.
Source: Mon, 12/15/2008 10:40 AM | Opinion, http://www.thejakartapost.com
The good news is that the new law will not be retroactive to existing mining concessions. They can continue to operate until the end of their CoWs, after which the contractors have to operate under the new system as regulated in the new law.
However strongly opposed mining contractors and potential investors are to the new contractual system, the blunt fact is that the new law, which has been on the House legislation agenda for more than three years, is the mining sector's best legal umbrella that has gained a national political consensus.
We understand the great concern among investors about what they see as a land mine under the new licensing system because of an added source of uncertainty about the permits for each stage of operations.
The CoW concept guarantees the duration of a mining activity from seismic surveying and exploration to feasibility studies, construction and production, as the different phases were all merged together under one contract.
However, under the new system, investors or contractors are required to obtain separate permits for surveys and exploration, a feasibility study and production development.
But the new legislation also stipulates that holders of exploration permits are guaranteed production permits as a continuation of their business activities.
Investors can still see this in a bad light, given the government bureaucracy's notorious reputation, making them vulnerable to delays or bureaucratic corruption.
Another good thing is that the stipulations on the terms and conditions of the permits for explorations and production are so comprehensive and clear-cut that the risk of unnecessary delays or unilateral refusals on the part of the government to grant a production permit after a successful exploration stage is quite small.
The exploration period, for example, is set at a range of between three and eight years and for production between 15 and 40 years, allowing for extensions depending on the category of the minerals.
True, more than anything else, legal and regulatory certainty is vitally important for mining investment because the industry is capital and technology intensive, faces high risks and has a long payback period and operates mostly in remote areas where basic infrastructures are extremely inadequate.
But the new licensing system is only one of more than 170 articles in the new law and most of these provisions seem designed to strengthen legal certainty in the mining industry.
In fact, the new legislation, which will replace the 1967 mining law, will fill in the legal vacuum in the licensing of new mining contracts (excluding oil, gas and geothermal) caused by the introduction of local autonomy in 2001.
No major mining contracts have been awarded after the enforcement of the autonomy law which devolved the authority for awarding mining contracts to regional administrations.
The new legislation clearly regulates the division of authority in the licensing of mining ventures among the central government and provincial and regency administrations, with the delineation of areas opened to mining contractors or reserved for strategic mining area under direct jurisdiction of the central government.
These clear-cut provisions will minimize the risk of disputes between regional administrations and the central government or between neighboring provincial and district administrations. There are also stipulations regarding divestment to national interests by foreign shareholders, local community development and the transfer of business competence to local companies.
At the end of the day, though, the effectiveness of the new law will also depend on the set of government regulations which have yet to be issued to enforce the legislation.
The implementing regulations will govern how the various ministries and the different levels of government will execute their respective functions and responsibilities as regards mining operations.
Source: Mon, 12/15/2008 10:40 AM | Opinion, http://www.thejakartapost.com
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