The Straits Times
Published on Dec 04, 2012

Battle over Indonesia resources to deter investment


JAKARTA (REUTERS) - A battle over the control of Indonesia's resources is intensifying ahead of 2014 elections, creating legal uncertainty that threatens to drive off investment and hurt long-term output in one of the world's top sources of coal, gas and metals.

The central government has shaken up the resource sector with a series of rules this year that give it greater control, by centralising the licencing process, taxing ore exports and pushing for investment in smelters. The moves have battered metal ore exports and drove some firms to exit.

"The sector is becoming so over-regulated it's Soviet Union-like," said the Indonesia country head of an international energy firm, which is staying in the country. "It will lead to less confidence, less investment and ultimately less supply." Entering the fray is an unlikely coalition of local governments, mining associations and nationalist Muslim groups, challenging resource laws in court and winning several cases on the grounds that some of the policies were unconstitutional.

Also at stake are the revenue flows that can be skimmed off from a complex series of approvals, licences, royalties or taxes in one of the region's most corrupt countries.