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Friday, 08 August 14
MINING DISPUTE IS CRIPPLING LOCAL ECONOMIES IN EASTERN INDONESIA - JG
 - By Iwan Harsono -
It seems as if there’s no end in sight to the series of negotiations between the government and mining companies about the Law on Mineral and Coal Mining (No. 4/2009), especially when taking into consideration the fact that Newmont Nusa Tenggara has opted to file for arbitration against the government of Indonesia. Geographically speaking, most mining giants, like Newmont and Freeport Indonesia, are operating in the Eastern Indonesia Region (KTI), comprising Papua, Maluku, Nusa Tenggara and Sulawesi, and the legal uncertainty surrounding mining operations has therefore led to a regional dip in economic growth.
Principally, the purpose of the Mining Law is noble, since it aims to increase the quality of the nation’s mineral exports for the benefit of its citizens, as stated in Article 33 of the 1945 Constitution. To complicate matters, however, several parties have argued that the Indonesian government isn’t ready yet to implement the law. Such circumstances have in turn led to the shutdown of several mineral mining companies across the country, particular in the east, a region rich in lucrative resources such as gold, copper and nickel.
Economic resilience
Currently, Eastern Indonesia is facing major developmental challenges and lately the investment climate has been less than helpful in increasing the region’s economic resilience. Eastern Indonesia has become a region that has suffered the most following the implementation of the Mining Law. At the macro level, this policy has resulted in a significant decrease in economic resilience. For instance, the region’s economic growth in the first quarter of 2014 fell to 4.6 percent (year on year), from 6.6 percent in the fourth quarter of 2013. Economic growth has struggled in several provinces, the majority of which rely heavily on the mining sector, especially Southeast Sulawesi, Papua, West Papua, West Nusa Tenggara, and West Kalimantan.
West Nusa Tenggara saw its economic growth decrease by 3.94 percent, with the mining industry suffering one of the sharpest declines at 9.82 percent in the first quarter of 2014. To make matters worse, an imbalance in the export-import rate often also leads to an even sharper overall economic decline.
There have been many changes following the implementation of the export ban in January earlier this year, and companies in the mining industry have struggled to cope. Strong sales overseas and the availability of only a limited number of smelters has influenced the production of copper (in Papua and Nusa Tenggara), nickel (in Sulawesi) and bauxite (in Kalimantan), and recently it has even threatened the coal industry as well.
Domino effect
Companies that didn’t see any way to sell their extracted resources were forced to shut down, send their employees home with limited pay or in some cases, dismiss them outright. Based on data from the Indonesia Mining Association, approximately 133,000 employees have been dismissed so far.
Newmont, for instance, sent home 6,400 of its employees in June because stockpiles have been full since last May due to the export ban. As one of the most important contributors to the local economy in West Sumbawa, Newmont’s production halt has impacted both the local and regional economies.
And there will be a domino effect on all other sectors that depend on the mining operations, for instance by providing services, and on the government, which will see a drop in tax and royalty income.
While those who were sent home are still receiving their salaries — albeit not the full amount — the economic impact has affected the communities surrounding the mining site the most, as most of them rely heavily on Newmont’s operations. Most of the small shop owners have complained of having excess stock as spending power continues to fall.
Handayani, a local diner owner, said that before the current economic struggles she often earned as much as Rp 10 million ($850) in a single day, though these days she claims she’s lucky if she can earn Rp 1 million by noon. Consequently, she has been forced to cut the number of her employees down from 12 to six.
When we look at the bigger picture, Newmont claims that the West Sumbawa region stands to lose as much as $726 million per year, the most of which comes from decreasing CSR investment, salaries and domestic purchases. If we take tax and royalties into consideration as well, the number would rise to $887 million annually.
Possible solutions
To strengthen the economy of Eastern Indonesia we will need to improve the regional infrastructure for transportation, specifically through the renovation of ports and airports in strategic cities. Unfortunately, at the moment the fear of losing employment has been on everyone’s mind.
With hindsight being 20/20, in retrospect the government should have prepared a mitigation plan prior to implementing the current regulation. Fear, anxiety and uncertainty have miners and surrounding communities worried. They have no other option but to hope the government steps in and lends a helping hand.
Renegotiations have to be finalized sooner rather than later.
For its part, the government has to be wise if it wants to solve the dispute with those involved. From both a macro and a micro economic perspective, the current mining dispute presents a major obstacle to development in Eastern Indonesia.
Renegotiations should offer a solution that is beneficial for both mining companies and the government in order to ensure that operations can be resumed as soon as possible. And it is crucial that the government prepare a safety net for local communities that depend on mining operations. Finally, a mitigation plan should be included in future mining regulations, specifically one that keeps the welfare of the locals in mind. These steps should be taken quickly if we want to fulfil the promises of our constitution.
Iwan Harsono, a member of the Advisory Board for Economic Resources in West Lombok, is a lecturer in economics at the University of Mataram.
This article was originally published in The Jakarta Globe
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- Malabar Cements Ltd - India
- Borneo Indobara - Indonesia
- Attock Cement Pakistan Limited
- CNBM International Corporation - China
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Sindya Power Generating Company Private Ltd
- Sarangani Energy Corporation, Philippines
- Commonwealth Bank - Australia
- Antam Resourcindo - Indonesia
- PowerSource Philippines DevCo
- Kartika Selabumi Mining - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- ICICI Bank Limited - India
- Cement Manufacturers Association - India
- Holcim Trading Pte Ltd - Singapore
- Intertek Mineral Services - Indonesia
- Kideco Jaya Agung - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Simpson Spence & Young - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Minerals Council of Australia
- Salva Resources Pvt Ltd - India
- Ministry of Transport, Egypt
- Trasteel International SA, Italy
- White Energy Company Limited
- Posco Energy - South Korea
- TeaM Sual Corporation - Philippines
- Bhoruka Overseas - Indonesia
- Toyota Tsusho Corporation, Japan
- Interocean Group of Companies - India
- Miang Besar Coal Terminal - Indonesia
- Bharathi Cement Corporation - India
- Energy Development Corp, Philippines
- Australian Coal Association
- Sakthi Sugars Limited - India
- Standard Chartered Bank - UAE
- Asmin Koalindo Tuhup - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- McConnell Dowell - Australia
- Makarim & Taira - Indonesia
- Energy Link Ltd, New Zealand
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Kepco SPC Power Corporation, Philippines
- Aditya Birla Group - India
- Latin American Coal - Colombia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Vizag Seaport Private Limited - India
- Gujarat Electricity Regulatory Commission - India
- Marubeni Corporation - India
- Formosa Plastics Group - Taiwan
- Parliament of New Zealand
- Bank of Tokyo Mitsubishi UFJ Ltd
- ASAPP Information Group - India
- European Bulk Services B.V. - Netherlands
- Carbofer General Trading SA - India
- Medco Energi Mining Internasional
- Planning Commission, India
- Star Paper Mills Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Kumho Petrochemical, South Korea
- Directorate Of Revenue Intelligence - India
- Uttam Galva Steels Limited - India
- Ceylon Electricity Board - Sri Lanka
- Tata Chemicals Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Metalloyd Limited - United Kingdom
- Ministry of Finance - Indonesia
- Sical Logistics Limited - India
- Bhatia International Limited - India
- Coal and Oil Company - UAE
- Maheswari Brothers Coal Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Central Electricity Authority - India
- Xindia Steels Limited - India
- Kapuas Tunggal Persada - Indonesia
- Savvy Resources Ltd - HongKong
- Bukit Baiduri Energy - Indonesia
- Global Green Power PLC Corporation, Philippines
- Tamil Nadu electricity Board
- GVK Power & Infra Limited - India
- Australian Commodity Traders Exchange
- Kaltim Prima Coal - Indonesia
- Power Finance Corporation Ltd., India
- Aboitiz Power Corporation - Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Petron Corporation, Philippines
- Goldman Sachs - Singapore
- Orica Mining Services - Indonesia
- Timah Investasi Mineral - Indoneisa
- GAC Shipping (India) Pvt Ltd
- Jaiprakash Power Ventures ltd
- LBH Netherlands Bv - Netherlands
- San Jose City I Power Corp, Philippines
- New Zealand Coal & Carbon
- SMG Consultants - Indonesia
- South Luzon Thermal Energy Corporation
- Georgia Ports Authority, United States
- IEA Clean Coal Centre - UK
- Meralco Power Generation, Philippines
- Dalmia Cement Bharat India
- Jorong Barutama Greston.PT - Indonesia
- SMC Global Power, Philippines
- SN Aboitiz Power Inc, Philippines
- Wood Mackenzie - Singapore
- CIMB Investment Bank - Malaysia
- Ind-Barath Power Infra Limited - India
- Ministry of Mines - Canada
- OPG Power Generation Pvt Ltd - India
- Mintek Dendrill Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Thai Mozambique Logistica
- Cigading International Bulk Terminal - Indonesia
- PNOC Exploration Corporation - Philippines
- Orica Australia Pty. Ltd.
- Siam City Cement - Thailand
- PetroVietnam Power Coal Import and Supply Company
- Rio Tinto Coal - Australia
- VISA Power Limited - India
- India Bulls Power Limited - India
- Iligan Light & Power Inc, Philippines
- Barasentosa Lestari - Indonesia
- Vedanta Resources Plc - India
- Billiton Holdings Pty Ltd - Australia
- Siam City Cement PLC, Thailand
- Altura Mining Limited, Indonesia
- Coalindo Energy - Indonesia
- Deloitte Consulting - India
- Petrochimia International Co. Ltd.- Taiwan
- Globalindo Alam Lestari - Indonesia
- Madhucon Powers Ltd - India
- Global Business Power Corporation, Philippines
- Kobexindo Tractors - Indoneisa
- Indogreen Group - Indonesia
- IHS Mccloskey Coal Group - USA
- Agrawal Coal Company - India
- Renaissance Capital - South Africa
- Karaikal Port Pvt Ltd - India
- Indonesian Coal Mining Association
- The University of Queensland
- Ambuja Cements Ltd - India
- Bulk Trading Sa - Switzerland
- Gujarat Sidhee Cement - India
- TNB Fuel Sdn Bhd - Malaysia
- Bangladesh Power Developement Board
- Eastern Energy - Thailand
- Binh Thuan Hamico - Vietnam
- Rashtriya Ispat Nigam Limited - India
- Electricity Authority, New Zealand
- Banpu Public Company Limited - Thailand
- Chettinad Cement Corporation Ltd - India
- Merrill Lynch Commodities Europe
- Lanco Infratech Ltd - India
- Independent Power Producers Association of India
- Bayan Resources Tbk. - Indonesia
- Anglo American - United Kingdom
- Mercator Lines Limited - India
- London Commodity Brokers - England
- Essar Steel Hazira Ltd - India
- The Treasury - Australian Government
- Edison Trading Spa - Italy
- Parry Sugars Refinery, India
- Maharashtra Electricity Regulatory Commission - India
- Mercuria Energy - Indonesia
- Thiess Contractors Indonesia
- Semirara Mining and Power Corporation, Philippines
- Global Coal Blending Company Limited - Australia
- Romanian Commodities Exchange
- Pipit Mutiara Jaya. PT, Indonesia
- Indian Energy Exchange, India
- Therma Luzon, Inc, Philippines
- Indika Energy - Indonesia
- Mjunction Services Limited - India
- Chamber of Mines of South Africa
- Bhushan Steel Limited - India
- Videocon Industries ltd - India
- Indian Oil Corporation Limited
- Manunggal Multi Energi - Indonesia
- Grasim Industreis Ltd - India
- Baramulti Group, Indonesia
- The State Trading Corporation of India Ltd
- Semirara Mining Corp, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Africa Commodities Group - South Africa
- Central Java Power - Indonesia
- Pendopo Energi Batubara - Indonesia
- Bukit Makmur.PT - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Indo Tambangraya Megah - Indonesia
- Eastern Coal Council - USA
- Straits Asia Resources Limited - Singapore
- Sojitz Corporation - Japan
- Economic Council, Georgia
- Riau Bara Harum - Indonesia
- Coastal Gujarat Power Limited - India
- Port Waratah Coal Services - Australia
- Larsen & Toubro Limited - India
- Samtan Co., Ltd - South Korea
- GN Power Mariveles Coal Plant, Philippines
- International Coal Ventures Pvt Ltd - India
- Sree Jayajothi Cements Limited - India
- Singapore Mercantile Exchange
- Kohat Cement Company Ltd. - Pakistan
- Offshore Bulk Terminal Pte Ltd, Singapore
- Price Waterhouse Coopers - Russia
- Electricity Generating Authority of Thailand
- Wilmar Investment Holdings
- GMR Energy Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Meenaskhi Energy Private Limited - India
- Oldendorff Carriers - Singapore
- Heidelberg Cement - Germany
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- MS Steel International - UAE
- PTC India Limited - India
- AsiaOL BioFuels Corp., Philippines
- Jindal Steel & Power Ltd - India
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