Tuesday, March 21, 2006 Vincent Lingga, The Jakarta Post, Jakarta
How the government resolves the imbroglio currently gripping mining firm PT Freeport Indonesia and its operations in Papua will have a very significant bearing on other big mining ventures already operating, as well as on new investment in mineral development.
Mining, in addition to fisheries and plantations, should be one of the most promising resource-based ventures in Indonesia, thanks to the country's major reserves in oil and natural gas, copper, old, nickel, coal, tin, silver, diamonds and base metals.
However, legal and regulatory certainty is vitally important, especially for mining firms to invest, because this business is usually capital- and technology-intensive and very risky. It has a long payback period and the companies must operate mostly in remote areas where basic infrastructure is extremely inadequate.
But it is legal and regulatory certainty that has increasingly become a big issue after the launching in 2001 of regional autonomy, including the devolving of the central licensing authority for mining concessions -- with the exception of oil and natural gas -- to regional administrations.
Even tree-crop plantations, which are labor-intensive and generally eco-friendly, have been facing a plethora of obstructive bylaws. Only last Wednesday, executives of the Palm Oil Producers Association called on President Susilo Bambang Yudhoyono, urging him to remove the myriad of anti-business regulations, which have adversely affected the international competitiveness of Indonesia's palm oil industry.
There has been a perception, right or wrong, among the public, that most major mining companies -- which obtained their concessions under Soeharto's authoritarian rule between 1967 and 1998 -- bulldozed their way through the licensing system to obtain all the necessary permits for their operations in collusion with corrupt officials.
The democratic era and regional autonomy have encouraged local people, who for more than 32 years were completely excluded from the decision-making process regarding the exploitation of local natural wealth, to forcefully assert their rights.
They often resort to venting their frustrations during street protests and irrational demands that the mining operations in their areas be simply closed down, claiming that the mines have not benefited the local community, but have instead damaged the environment.
This is really a challenge for the government and investors because protesters usually consist of a mix of local leaders, pressure groups, human rights activists and environmentalists, some with genuine causes and legitimate grievances, but many others with self-seeking interests.
Certainly, business is not always right and those, which are found guilty of violating the laws and neglecting their social responsibility, must be brought to justice. But on the other hand, those which are not guilty but still find themselves being harassed and subjected to spurious claims, should be protected by the government.
Since protest demonstrators often block entry to a mine or plant, businesses need the government's firm action to get the protesters out of production compounds and to redirect their grievances to consultative forums or the court system.
Street protests, if not handled properly, will allow the mobs to have a field day, and businesses will be at the mercy of lynch mobs.
Simply ordering the closure of a mine without due process of the law boils down to the government succumbing to the mob's ultimatum, a precedent which could threaten the fate of many other resource-based investment ventures.
Only when there is certainty and consistency in law enforcement, so that the course of investment can reasonably be predicted, will big investors be interested to plough their capital in Indonesia.
Investors, domestic or foreign, understand and often expect that laws or rules can change over time to address social issues, new aspirations and new economic developments. But they will not accept unilateral official decisions made without any clear legal basis, merely the tremendous pressure from public protests.
It is always unpopular to stand up in the defense of big business, especially foreign big business, and politicians like the President, well-known now for his indecisiveness, do not like to do unpopular things.
But the experiences in other countries also demonstrate that a sign of true leadership is the ability to take the unpopular, yet vital, action that is in the best interest of the public.
Regional administrations also have a great interest in attracting more investments in natural-resource based ventures. Under regional autonomy, they are now entitled to 80 percent of the land rents and royalties from fisheries, forestry and mining companies. The revenue split between the central government and regional administrations is 85:15 and 70:30, respectively.
On the other hand, investors too should realize that merely abiding by the laws is no longer sufficient to secure smooth business operations.
They should broaden their social responsibility, not by philanthropic activities, which will only create a sense of artificial prosperity, but by empowering the local community through programs, which are designed to gradually transfer business, technical and social competence to local communities.
Successful investment ventures have shown that businesses, which have fulfilled their social obligations, are less vulnerable to pressures from local communities or administrations.
After all, a company's best defence is its reputation in the community.
The writer is a Senior Editor at The Jakarta Post
0 comments:
Post a Comment