JAKARTA—A new law limiting foreign ownership in Indonesia’s mining industry to 49 percent is likely to put off investors, who have poured billions into the industry, industry commentators said Thursday.
The decree was signed by the president on February 21 and made public on the mining ministry website this week, downgrading the maximum foreign stake from 80 percent.
The regulation, applicable only to new contracts, stipulates that foreign ownership should be no more than 49 percent by the 10th year of production.
“It effectively means foreigners are going to lose control after 10 years. It’s going to make Indonesia a lot less attractive to foreign investors, as if it wasn’t already,” Deloitte technical advisor on mining in Indonesia, Julian Hill, told AFP.
“This regulation is the latest in a string of changes to practice that have lessened Indonesia’s attractiveness to investors.”
The law stipulates that after the fifth year of production 20 percent of the ownership must be divested, with the amount gradually reduced over the next five years.
“Sometimes a mining company doesn’t break even in five years, especially companies that make huge investments, like gold miners,” Indonesian Mining Association deputy chairman Tony Wenas said.
Foreign direct investment in Indonesia, Southeast Asia’s biggest economy, hit a record $20 billion last year, with $3.6 billion attributed to the mining sector.
Despite the passage of a mining law in 2009 that promised to improve the investment climate for foreigners, discussions in parliament have in recent years taken a more protectionist tone.
The government wants to ban the export of raw minerals by 2014 to stop foreign companies reaping the country’s abundant natural resources and to encourage local industry.
The new regulation states its aim is to give “a greater opportunity for Indonesian entities to participate in the mineral and coal-mining business.”
Kurtubi, an economist at the University of Indonesia, welcomed the regulation, saying foreign companies have for too long made huge profits from Indonesian resources without giving enough back to the country.
“It’s not true that the regulation will deter foreign investors, because even if they hold a smaller share, they will still harvest plenty of profits,” said Kurtubi who, like many Indonesians, goes by a single name.