Jakarta’s new mining and oil regulations are really about rent-seeking and corruption.
Mr. Kurtz is head of Asia-Pacific for A.T. Kearney, where Mr. Van Zorge is a senior fellow.
Jakarta – Lately, the Indonesian government has unleashed an array of policies that are keeping mining and oil executives awake at night across this vast and geologically rich archipelago. The unpopular new regulations, aimed at reforming the mining and oil industries, are promoted in the name of “national interest.” Yet left uncorrected, they will inevitably lead to a dramatic decline of output in Indonesia’s extractive industries, damaging foreign investment and economic growth.
Particularly hard-hit will be some of Indonesia’s less-developed regions such as Kalimantan and Papua, where oil and mining play major economic roles. “Equating the government to the Emperor Nero and the local mining industry to ancient Rome,” said Bill Sullivan, leading legal consultant for the mining industry in Indonesia, “It is as if Nero is choosing to complacently fiddle while Rome burns.”
Why exactly this fiddling persists—especially since large investors have already cut back from planned capital outlays—is open to debate. Some industry players blame the lack of policy coordination between the central, provincial and local governments. Others blame senior policy makers who meddle with little understanding of the extractive industries.
Privately, though, both Indonesian and foreign executives claim that the “national interest” is little more than a disguise for rent-seeking, most of the time directed toward corporations with the deepest pockets. Thus the likes of Newmont, BP, Total Oil, and Freeport McMoRan are facing growing concerns from their shareholders and board members. Given the new policies, they wonder whether it’s worth the headache to conduct business in Indonesia.
To be fair, corrupt practices in the name of the greater good have existed long before the current administration. Indonesia has had way too many cooks in the regulatory kitchen ever since former President B.J. Habibie unveiled in 1999 his “Big Bang” policy, which gave unprecedented levels of power to local governors, mayors and local legislators under the flag of regional autonomy. With little national oversight, rent-seeking has run rampant.
The maze of bureaucracy and overlapping mandates at the local and national levels causes confusion and costly delays for miners and oilmen. But it creates opportunities for those seeking to profit from approval timing or technical issues “Licenses approved by one level of government can easily be denied or rescinded by another,” says one senior geologist. “The degrees of freedom for a dispute are enormous, and for a foreign investor, there is little if any legal recourse.”
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