Fishermen in North Sulawesi, site of a controversial mining project
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The mining sector has been plagued by similar obstacles, among them a longstanding lack of regulatory clarity because the country has been in the process of overhauling its mining laws for the past seven years. In a survey of mining companies released earlier this year by the Fraser Institute, a Canadian research organization, Indonesia tied for No.1 out of 68 countries and regions for its mineral potential, but ranked 62nd in the clarity and friendliness of its policy and regulation. Investor sentiment has also been dampened by high-profile conflicts between miners and Jakarta. This year, the government threatened to cancel the contract of Newmont Mining to operate a copper and gold mine on the remote island of Sumbawa, claiming the Denver-based firm failed to honor an obligation to divest shares in the mine to Indonesian investors. Newmont says it has offered the shares to the government but they were never purchased. (The matter is now in arbitration.) The current spat follows an incident when the president of one of Newmont's local operations was summoned by police for questioning in 2004 and later put on trial on allegations that a gold mine in Sulawesi had polluted a nearby bay; the executive was later acquitted of any wrongdoing. Says Fred McMahon, the director of the Fraser Institute's Center for Trade and Globalization Studies: "Miners don't feel they can trust the Indonesian government."
Who's in Charge?
For the past five years, Terkelin Purba, a director at Archipelago Resources' local subsidiary, has had the unenviable task of negotiating with Indonesia's government to get the Sulawesi gold mine up and running. Purba can recount in excruciating detail all of the documents filed, approvals received and steps taken that should, by his reckoning, allow the gold mine to start production. "There is no reason for the project not to proceed," Purba claims.
But across town, in an office overlooking Sulawesi's spectacular coastline, Sinjo Hari Sarundajang, the 63-year-old governor of North Sulawesi province and the mine's chief opponent, says Purba has it all wrong. In the old Suharto order, a local politician like Sarundajang would likely have played almost no role in Archipelago's affairs. But in the new Indonesia, he is a formidable figure with far greater authority. Sarundajang whips out his own documentation listing the regulations he has followed in his effort to block the mine from opening. Though he says he's happy to welcome foreign firms into his province, he fears that mining could bring environmental degradation to Sulawesi and derail his vision for the province as a tourist hot spot. The local people, with their rich fisheries and farmland, don't require a gold mine to earn a good living, he contends. Dubbing himself the "Green Governor," Sarundajang proclaims: "I am with the people."
The result of this confrontation has been a series of claims and counterclaims, with each party fully confident that the law is on their side. The main point of contention has been the project's plan to dispose of the mine's waste and control its environmental impact. Without government approval for this plan, Archipelago cannot begin mining. Opposition from the provincial governor has caused lengthy construction delays. Earlier this year, the company announced its plan was approved. But the Minister of Environment, Rachmat Witoelar, who has final authority, supports the governor and says he hasn't given his approval and that the company is misreading the regulations. The problem, Witoelar says, is that the mine "doesn't have the support of the people." (Archipelago insists it has public support.) Even the Minister of Energy and Mineral Resources, Purnomo Yusgiantoro, hasn't been able to sort out the mess. Purnomo says he fully backs Archipelago's project and he has told Sarundajang that "we signed the contract, we have to respect the contract." Meanwhile, Purba fumes that Archipelago and the mine's preceding owners have spent about $100 million on the project so far without result. "Yes, I'm angry," Purba says. "Because we've lost a lot of money and we can't understand why. I do believe that (the national leaders) are trying to do everything from their side to get investment, but other government ministers don't get it."
Falling Short
the man who was supposed to fix indonesia is Susilo Bambang Yudhoyono, Indonesia's President. The former general was elected by an overwhelming landslide in 2004 based on his reputation as a can-do administrator and levelheaded political broker — a refreshing change after six years of often dithering leadership. In some respects, Yudhoyono hasn't let his nation down. He has successfully defused the country's Islamic terror networks and peacefully resolved a longstanding conflict with a separatist movement in Aceh province. The economy is performing solidly if unspectacularly: GDP grew 6.3% in 2007, the fastest in 11 years. Yudhoyono's government has also made progress on some of the sticky regulatory issues that have hamstrung international businessmen. A new investment law, passed last year, overhauled the country's foreign-investment rules and, according to a recent study by the OECD, Indonesia now imposes less red tape on potential investors than many other emerging markets, including China. The government is also expected to introduce business-friendly tax reforms that would set the corporate tax rate at a flat 25% by 2010. Indonesia has seen a resurgence of investor interest. India's Tata Power last year paid $1.1 billion for stakes in several coal-mining operations. Steel giant ArcelorMittal is looking into investments that could reach as much as $10 billion, and mining firm Rio Tinto is negotiating with the government to open a $2 billion nickel mine. Overall, FDI reached $10.3 billion in 2007, up 73% from the year before.