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Indonesia seeks to mend fences with wary investors in resources

Mon 22nd June, 2015 10:00pm
* Ban on unprocessed mineral exports hit revenue last year 
    * Indonesia seeking to entice money back after uncertainty 
    * Govt push to resolve mining disputes, renew energy 
    * Policy risks remain as president lacks parliamentary 
    By Michael Taylor 
    JAKARTA, June 23 (Reuters) - Nationalistic policies imposed 
by Indonesia's previous administration - including a ban on 
unprocessed mineral exports - threw the resources sector into 
turmoil last year.  
    Now, there are signs under President Joko Widodo that the 
government is trying to mend fences with wary investors and 
entice more money back into resources. 
    Indonesia's resources sector contributed about 12 percent of 
GDP last year, or about $101 billion, but investment slipped and 
the ban on exporting minerals cost $6 billion in lost revenue. 
    The government now plans to relax parts of the ban, as well 
as pushing to resolve some protracted mining disputes and 
dealing with a backlog of expiring energy contracts that have 
frustrated foreign investors.  
    "There are still lots and lots of difficult hurdles to 
overcome, but we are seeing something of a change in mindset and 
that's good news," said mining law expert Bill Sullivan, foreign 
counsel at Christian Teo Purwono & Partners. 
    The more open approach was on show at a recent global coal 
conference in Bali, where Indonesia's energy and mining 
minister, Sudirman Said, candidly answered questions on a host 
of issues concerning the packed auditorium after his speech. 
    Indonesia is a top producer of metals such as copper, as 
well as coal and gas, but foreign firms often complain about 
legal uncertainty, red tape and haphazard implementation of 
    This policy uncertainty came to a head last year when 
Jakarta pressed on with the ban on mineral exports, even though 
there was not enough smelting capacity yet to process shipments. 
    While supporting the plans, Widodo's government now admits 
there were mistakes implementing them and is looking to push 
back a 2017 deadline banning copper concentrates exports and 
could ease its ban on bauxite exports.  ID:nL3N0Z22F3       
    Widodo, who took office in October, will need to win the 
trust of the industry to meet a target of increasing mining 
revenue by about 50 percent this year to support a flagging 
    Indonesia's foreign direct investment in mining slipped to 
$4.67 billion last year from $4.82 billion.   
    According to a source familiar with the negotiations, 
London-listed Churchill Mining  CHLL.L  is in talks with the 
government aimed at reaching a settlement in a long-running 
arbitration dispute over the licensing of a Borneo coal project. 
    The government and Freeport-McMoRan Inc  FCX.N  also said 
this month that they were closer to agreeing a new contract to 
operate the U.S. miner's giant Papua copper mine after earlier 
threats to remove its permit over a smelter dispute.   
    Still, enticing investment at a time when most commodity 
prices have slumped won't be easy, particularly without 
co-ordinated policy making. 
   "Among high level officials in the government, they still 
don't have a consensus," said Tato Miraza, former CEO at 
state-owned miner Aneka Tambang  ANTM.JK .  
    The mining and energy ministry says it is holding regular 
meetings with other ministries, state-owned enterprises and 
industry bodies in a bid to fix this.    
    The government has also been pushing plans to overhaul 
Indonesia's oil and gas sector and tackle a so-called "oil 
mafia" accused of skimming money in oil deals. 
    But Widodo still faces obstacles to his policies, 
particularly since he lacks a majority in parliament, as well as 
facing legal challenges from Muslim groups such as Muhammadiyah 
over private participation in the oil, gas and water sectors.  
    Nonetheless, in another sign that issues are being fixed, 
Indonesia last week said it would allocate Total  TOTF.PA  and 
Japan's Inpex  1605.T  a 30 percent stake in the Mahakam oil and 
gas block once the French major's operating rights to the 
country's top gas field expire in December 2017. 
    The decision resolves a more than seven-year tussle over the 
block, and follows calls for it to be handed over entirely to 
state-owned energy firm Pertamina. 
 (Additional reporting by Gayatri Suroyo, Bernadette Christina, 
Fergus Jensen and Wilda Asmarini; Editing by Ed Davies) 
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