Our Natural Resource Governance

Given that the mining sector contributes 15 percent to Indones1a’s gross domestic product (GDP) and almost 10 percent to total exports, the appointment of Ignasius Jonan as the new energy and mineral resources minister and Arcandra Tahar as deputy minister would significantly strengthen the reform our natural resource goverriance. Jonan’s managerial experiences at a major international bank, the State Railway Company PT KeretaApi Indonesia (KAI) and as the transportation minister will provide strong synergy paired with the high technical competence of Arcandra, who owns several international patents in offshore hydrocarbon development.

Fortunately most ofthe country’s promising hydrocarbon sedimentary basins lie deep in the seas in the eastern region. Yet more encouraging is that J onan and Arcandra are not beholden to any political parties and are well known for their impeccable integrity. This factor matters greatly in the mining sector which is highly vulnerable to corruption. At the end ofthe day, though President Joko Jokowi” Widodo’s support is still imperative in helping the duo navigate the political minefield ofthe mining industry notably the upcoming amendments ofthe general mining and oil and gas laws. But Jonan and Arcandra will immediately face tough challenges, such as the long-awaited decision on the US$15 billion Masela gas development plan in Maluku led by Inpex and Shell. The solution to the controversywill have great impact on two other big gas projects - the $12 billion Indonesian Deepwater Development (IDD) by Chevron and the $4 billion Jangkrik project of ltaly’s EN I.

The prolonged dispute over the value-added tax (VAT) refund for third generation coal mining contractors is also a most pressing issue. The third generation contracts speacifically outline provisions stipulating that coal is taxable Within VAT mechanisms in line with Law No. 11/ 1994 in VAT. However, problems arose after the government issued a regulation (PP No. 144) in 2000 stating that coal is not taxable within the VAT system which contradicts the VAT law. As a result, regional tax oiiices have treated VAT refund applications from miners differently Most third generation coal mining companies have virtually stopped new investments, thereby threatening future coal production, whereas about 50 percent ofthe 35,000 MW power generation programs in the next five years will be fired by coal.

The State Electricity Company PLN has estimated that within the next five years its power generation will eat up most ofthe 450 million tons of coal produced amiually. The new minister should act immediatelyto resolve the VAT problems, otherwise production will fall, especially due to the global downturn in commodity prices in the coal industry. Mining should be one ofthe most promising resource based ventures because ofthe country’s major reserves in oil and natural gas, copper, gold, nickel, coal, tin and base metals. But legal and regulatory certainty is crucial for mineral prospecting and extracting is capital and technology intensive, and the industryis highlyrisky and has a long payback period.

Jakarta Post, Page : 6, Tuesday, Okt, 18,2016