This Article was Published in The Jakarta Globe August 7th 2014.
It seems like the series of negotiations between the government and mining companies, which stumbled with Minerba Law No. 4/2009, have yet to see an end, particularly with the never-ending renegotiation of PT Freeport Indonesia (PTFI) and PT Newmont Nusa Tenggara (PTNNT) arbitration lawsuit to the government of Indonesia earlier this month. Geographically, both giant mining companies are located in the Eastern Indonesia Region (Kawasan Timur Indonesia, or KTI), and the law uncertainty which influences the operations of both companies has also led to the decline of the whole economic growth in the area.
Principally, the purpose of Minerba Law is good, since it aims to raise the quality of Indonesia’s mineral exports for the welfare of its people, as stated in article 33 of the 1945 Constitution. However, several parties argued that the Indonesian government is not fully ready to implement the law. These circumstances have led to the shutdown of mineral mining industries in several areas in Indonesia, particularly Eastern Indonesia, which has several mining industriesfrom gold, copper until nickel.
The Economic Resilience of KTI
Currently, the Eastern Indonesia Region (KTI) faces a major challenge in the development sector, as the investment climate is less conducive to boost the region’s economic resilience. KTI becomes the region impacted most from the implementation of Minerba Law. At the macro level, this policy has caused a significant decline in the KTI’s economic resilience. The KTI economic performance in the first quarter of 2014 has dropped to 4.6% (yoy), while the fourth quarter of 2013 saw it grow until 6.6% (yoy). The decline in economic resilience occurred in several provinces with strong mining sectors – which are their most important economic wheels – such as Southeast Sulawesi, Papua, West Papua, West Nusa Tenggara, and West Kalimantan. This condition relates to the performance degradation of the mining sector as the mining companies need to adjust to several changes. There are many changes after the implementation of Minerba Law in January 2014 that which need to be adjusted by those mining industries. The dominant sales overseas orientation and the limited capacity of smelter influence the production activities of copper (Papua and Nusa Tenggara), nickel (Sulawesi) and bauxite (Kalimantan), and has lately threatened the coal industry as well. At the same time, global mineral prices have been fluctuating due to the lack of supply of minerals from Indonesia since the export ban was took effect.
Those companies that didn’t have any option in selling their mining production were forced to shut their industries down, send their employees home or even, dismissed some. Accumulatively, thousands of mining workers have been fired from their previous companies. Based on the Indonesia Mining Association (IMA), approximately 133,000 employees have been dismissed from their previous companies. This figure does not include indirect workers such as contractors, and the supporting system which of course, would also be affected should the mining companies close.
For instance, major mining company PTNNT in early June sent 6,400 of its workers home, due to their full barn, which has been full since last May as they cannot export their products. As one of the important contributors for the local economy in West Sumbawa, Newmont’s production halt impacted both the local and regional economies. A multiplier effect is in store, for instance supplier effects, Respending effects, and government employment effects. Supplier effects are impacts caused by losses in the job field. Respending effects are indirect impacts on the sector where they usually spend their expenses (surrounding system). Government employment effects are related with taxes or royalty incomes for local and central governments.
It has been a long time, since we started wait for the government‘s promise to enhance and promote economic equality. This positive pulse can be seen by better transportation infrastructure quality, as seen in the renovation of ports and airports in strategic cities in eastern Indonesia. However, at the beginning of this year, anxiety has left everyone worried, as many fear losing their jobs.
The government should have mitigation plans prior to the implementation of the regulation. People’s destinies are difficult matters able to significantly impact both socially and economically. Anxiety, fear, and restlessness loom over miners and people who live around mining areas. They have no option rather than to hope for government assistance. Finally, the government’s involvement will have huge effects, particularly regarding safety net readiness for people around mining operation areas.
Expected Solutions
At the end of the day, renegotiation must be quickly done. The government must be wise in solving the dispute with Newmont. Instead of fighting back at the international arbitration court, the government should “invite” Newmont to negotiate under the regulations in Indonesia.
Meanwhile, from an economic resilience perspective both macro and micro, in eastern Indonesia –which demonstrates negative growth, this dispute must be considered an obstacle and the government should try to find a solution. First, renegotiations should give reliable and high–end solutions to support mining companies to quickly resume their operations. Second, the government should prepare a safety net for local communities that live around mining operations. Third, mitigation plans should be included in the blueprint of the UU on mineral and coals, particularly on social-economic welfare of the local people. These should be done quickly if we want to promote the realization of UUD 1945.
———————————————————————-
*) Chairman of Integrated Economic Region NTB 2009-2012 and Advisory board for Economic Resources West Lombok, NTB. Graduated from University of New England, Armidale NSW Australia. Currently lives in Mataram.
Leave a Reply