Interview: Martiono Hadianto
What needs to be done to encourage investment in greenfield projects rather than simply expanding existing mining operations?
MARTIONO HADIANTO: Production at existing mining areas will eventually decline and shut down. In order to maintain – or even increase – current production levels, the government has to undertake new mineral explorations in addition to expanding current projects. Exploration spending is essential for the future of this industry, and the Indonesian government should work harder to create a competitive and investor-friendly fiscal regime to attract additional investment in the mining sector. The industry is capital-intensive, which means that strong incentives are key to competing with other countries. In addition, when it comes to new projects, the government and the private sector must have the same understanding of forestry regulation, especially regarding the balance between exploration and forest protection. Coordination between the forestry and energy ministries should be intensified to address investors’ concerns, and a 100% guarantee for exploration and production should be offered.
How has the industry reacted to the government’s willingness to renegotiate existing contracts so that the distribution of royalties can be improved?
MARTIONO: It has been said that the government’s plan could drive away investors willing to take part of future explorations in our country. However, the IMA understands the government’s point of view and the popular pressure to avoid what is considered an imbalance of wealth distribution in certain contracts. Accordingly, our role is to act as a bridge between the government and the private sector, transmitting the concerns of the industry. Most of our members want to stay in Indonesia and be involved in future explorations. They want to see this issue addressed in the best possible way, and they are assuming that the contracts they sign will be honoured. Nobody in the industry likes the idea of entering into a contract with the government only to find out in two or three years that it is going to be unilaterally modified.
To what extent has the government been able to encourage investment in the downstream sector?
MARTIONO: There is a lot work that needs to be done before moving up the value chain and getting into the value-added business. The 2009 regulation forces us to process the products domestically but not to invest downstream, which is currently unrealistic. To be able to process raw materials, we require a number of facilities that are currently unavailable to us. Adequate infrastructure is key, and once it is established we will develop value-added industries, which will be our competitive advantage in meeting our domestic market needs, as well as expanding to international markets. A company like Pertamina, for instance, which is state-owned and benefits from numerous resources, has not been able to undertake this challenge yet and still cannot refine their own crude oil. Moreover, the government cannot impose certain requirements upon our industry without providing the necessary support that will allow us to achieve the goals they have set.
What measures are being considered to ensure that environmental standards are being upheld for all companies operating in the sector?
MARTIONO: Environmental standards are a matter of education and attitude towards a problem, and not about the resources, technology or volume that a company has. Therefore, standards should be upheld in every company, no matter its size or its geographical location. We have a duty to educate people about the importance of preserving the environment. We are very concerned about environmental measures, and we take the principles of sustainable development and conservation of biodiversity extremely seriously. I believe that all the members of the IMA will be able to meet the government’s targets for carbon emission reductions, and adopt environmentally friendly practices.
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