The new regulation will force foreign companies to sell down stakes in mines by the 10th year of production, with domestic ownership to be at least 51%.
JAKARTA (Reuters) – Indonesia will take more of the profits from its vast mineral resources by limiting foreign ownership of mines in a move likely to scare off new investment in the world’s top exporter of thermal coal and tin.
Under new rules announced on the mining ministry’s website, Southeast Asia’s largest economy will require foreign companies to sell down stakes in mines and increase domestic ownership to at least 51 percent by the 10th year of production.
The move is part of a global trend of increased resource nationalization that is pushing up the costs of mining for international companies and giving governments in emerging market countries more cash and clout.
Indonesia may have a fresh stamp of approval from ratings agencies as an investment grade nation, but the unexpected regulation underlines continuing policy uncertainties that have long been a major risk for investors hoping to tap some of the world’s richest deposits of coal, gold and copper.The regulation, signed by President Susilo Bambang Yudhoyono on Feb. 21, comes as the government is renegotiating existing royalty contracts with major foreign investors such as Freeport McMoRan Copper & Gold Inc and Newmont Mining Corp .
It was not clear how soon the regulation will apply to existing investors.
“The aim is the state has to get more. For new investment it will be simple, but for existing investment there must be re-negotiation,” Mining Minister Jero Wacik told Reuters.
Freeport said it was confident the Indonesian government will honor all existing contracts and that it has voluntarily agreed to divest some of its stake.
In a statement to Reuters in Jakarta, the company stressed there was a “mutual commitment as part of Freeport Indonesia efforts for future investment.”
Spokesman Eric Kinneberg separately told Reuters in New York that Freeport’s contract does not require the company to divest any portion of its ownership in its local units, PT Freeport Indonesia or PT Indocopper Investama.
Freeport owns 90.64 percent of the vast Grasberg copper and gold mine and the Jakarta government owns the other 9.36 percent. Kinneberg said the company had earlier agreed to voluntarily divest at fair market value a 9.36 percent part of its interest.
“Discussions with potential acquirers, including the Province of Papua, regarding a potential transaction are ongoing, he said.”
Freeport also said it will resume operations at Grasberg on March 12 following a temporary suspension due to work disruptions.
A spokesman for Denver-based Newmont said the company, the world’s second-largest gold producer, believed the proposals would have no impact since it already divested and now owns a minority stake in the Indonesian unit that operates its Batu Hijau mine. A nearby development project, Elang, is covered by the same contract.
“The divestiture requirements outlined in the new law appear to be very similar to the terms of our existing contract of work,” Omar Jabara said in an e-mail to Reuters in New York.
He said 44 percent of the shares in PT Newmont Nusa Tenggara are already owned by Indonesian entities and the remaining 7 percent was already offered for sale and is awaiting final purchase from the Indonesian government.
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