Indonesia's mining firms no longer on solid groundProtests, legal conflicts and environmental battles have hit several foreign mining firms in Indonesia, and one issue stands at the heart of the disparate challenges they face - Indonesia's drive towards greater democracy and regional autonomy.No longer can foreign firms rely on an autocratic central government to brush aside regional objections about the impact of their activities. Across Indonesia, regions are increasingly demanding concessions - and cash - from mines on their turf.
Foreign firms must adapt, or suffer.
"We have to accept the fact that people now have the courage to protest after being suppressed for over 32 years," Paul Louis Courtier, executive director of the Indonesian Mining Association, told Reuters.
But with democracy comes uncertainty.
"From mid-1998 until today, a climate of indecision has hung over industry in general and the mining industry in particular," Courtier said. "The euphoria of reforms and democracy sparked general criticism of big corporations which are accused of not doing enough to improve the welfare of local people."
Analysts say the main issue for foreign investors is that existing contracts are respected - otherwise the uncertainty would be too great to make investing worthwhile. But they say foreign firms must accept the need to make concessions.
"The message is that mining firms must abide by the terms of their contract but must also be sympathetic to the aspirations of local communities - which in many ways means paying more," said David Rubin, resources analyst at Nomura in Jakarta.
MINING FIRMS UNDER FIRE
Several recent cases have rocked Indonesia's mining industry.
Earlier this month, gold and silver miner PT Kelian Equatorial mining, owned by Rio Tinto, was forced to temporarily halt production and evacuate workers from its site in East Kalimantan after protesters seeking land compensation blockaded all access roads to the site.
The incident followed the occupation late last year by Dayak tribespeople of another mine in Kalimantan - the PT Indo Muro Kencana, a subsidiary of Australian Aurora Gold.
In Sulawesi last month, a tax row with regional authorities threatened to close a mine operated by gold miner PT Newmont Minahasa Raya, a unit of Denver-based Newmont Mining Corp A compromise was eventually found after Newmont agreed to pay $3 million for tax and community services.
There has also been trouble for the giant Freeport gold and copper mine in remote Irian Jaya, majority owned by Freeport-McMoran Copper & Gold Inc.
Protests by locals and environmental groups have dogged the mine, and last week the government threatened to suspend production after an accident killed four workers. In the end, authorities allowed production to continue but banned the dumping of waste at the accident site.
Analysts said that while the risk of Freeport's closure was low, the tussle was symptomatic of the increasing tendency of Jakarta and regional governments to try to wring more concessions from foreign mining firms operating in the country.
They said new laws devolving more control over mining contracts with the provinces, due to come into force in the coming year, would create further uncertainty for miners.
PROBLEMS FROM THE PAST
Courtier said foreign mining firms were being blamed for the failed policies of former President Suharto. The autocratic leader was ousted in May 1998 after a 32-year rule.
"Most producing mines are under criticism due to environmental and social dissatisfaction. In many cases, this has its roots in the dissatisfaction against the old regime but the companies are being blamed," he said.
President Abdurrahman Wahid has pledged to honour all international contracts, but urged foreign firms to renegotiate any deals that resulted from corruption under Suharto's regime.
And his government's efforts to promote regional autonomy, in a bid to calm separatist tensions, have given provinces the ammunition to demand more from mining firms. Rubin said one problem was that royalties from mining were still channeled to the central government, leaving provinces unhappy.
Indonesia says foreign investors have nothing to fear from the new climate, but must do their bit for the community.
"The government will try very hard to secure foreign investment here. But the companies have to play their part of the game by improving people's welfare and practising good governance," said Investment Minister Rozy Munir.
But Courtier said the government should act firmly against people who use force to press their demands on mining firms.
"We want democracy, but it also has rules," he said.