Direct drivers – Mining
Mining in Indonesia usually involves clearing forests or farmlands to dig deep, open pits which are often abandoned when they are exhausted, and significant environmental damage often results. Indonesia’s mineral reserves are distributed across the country, with mining operations centred on the provinces of Papua, Bangka-Belitung, West Nusa Tenggara and East Kalimantan. Almost all mining operations are located in conservation areas or protection forests, due to the rich mineral ores found there. Many of these areas are regarded as critical tropical rainforests of significant biological and environmental value.
In 2012, the mining industry accounted for almost 7 percent of Indonesia’s Gross Domestic Product, with a value of around US$51 billion. In all, with the country responsible for the extraction of around 17 percent (41,000 tonnes) of the world’s tin in 2012, 10 percent of its nickel (228,000 tonnes), and 2 percent of its copper (360,000 tonnes) and gold (59,000 tonnes), mineral exports were worth around US$31 billion, equivalent to around 17 percent of total exports, only slightly less than oil and gas.
Whilst tin, gold and copper production has fallen over the last ten years, nickel production has grown strongly, and coal spectacularly. In 2001, Indonesia produced only 67 million tonnes of coal, but with production estimated at 489 million tonnes in 2013, and exports at 426 million tonnes, the country now stands as the world’s fourth largest coal producer (after China, the USA and India), and its top exporter. Government revenue from mining has similarly increased over recent years, reaching IDR12.5 trillion (around US$1 billion) in 2010.
Indonesia’s rapid and extensive decentralization, and particularly the 2009 Minerals and Coal Mining law, which transferred substantial licensing authority to sub-national administrations, has resulted in a proliferation of mining permits, which coupled with poor monitoring and increased rates of corruption, has led to extensive illegal mining. With local government capacity low, coordination between different levels of government poor, and oversight and accountability mechanisms weak, licensing processes have been abused by district officials for personal gain, or to support election campaigns. Licenses have in many cases been issued to more than one company to exploit overlapping areas, or to prospect and mine in protected and community-owned areas, and illegal licenses have been issued to companies that are not registered for tax.
Law No. 41 of 1999 on Forestry supposedly prohibited open mining in protected forests, and mandated the revocation of all mining licenses that had been granted in protected forests. However pressure, most significantly from the industry, resulted in a Presidential Decree in 2004 which excluded contracts and licenses that predated the 1999 law. In 2011, coal mining permits alone covered over 21 million ha in Indonesia, equivalent to almost entire land area of the United Kingdom.
With royalties and land rents shared between the national government and the producing regions, many heavily forested provinces benefit greatly from mining revenues. In Papua and East Kalimantan, for example, mining accounted for 63 percent and 27 percent of Gross Regional Domestic Product respectively in 2010, yet significant disparities of wealth, and considerable poverty remain in these areas. Evidently, the wealth derived from coal and minerals extraction does not necessarily reach everyone in the community, let alone those detrimentally affected by mining activities.
With official estimates suggesting that almost half of Indonesia’s businesses with mining permits pay no royalties, that a similar proportion lack obligatory tax reference numbers, and that the state may suffer the equivalent of US$1.2 billion of losses annually from the mineral sector, in 2014 the national Corruption Eradication Commission (KPK) implemented a crackdown. Working with the Supreme Audit Agency and other agencies, the KPK investigation focused on the 12 provinces with the highest number of mining permits with the aims of reviewing the legality of the permits, checking if mining companies have valid tax identity numbers and are paying their taxes fully, and investigating whether permits overlap with other concessions, or protected forest areas.
Two other significant changes towards improving governance and civil society oversight of mining in Indonesia occurred in October 2014. The first was a new law on regional governance (Law No. 23 of 2014) which restored the authority for granting new permits for concessions to provincial and central governments. The second was the country’s acceptance into the global Extractive Industries Transparency Initiative (EITI), a scheme designed to promote transparent and accountable governance in the management of national oil, gas and mineral resource revenues.
In time it is hoped that these initiatives, along with continuing scrutiny and pressure from civil society groups, will reduce the damage and destruction that poorly controlled mining is causing to Indonesia’s communities, forests and other valuable ecosystems. Improved governance is also essential to address conflicts with affected communities, stop the pollution of agricultural land and limit the simple physical dangers associated with abandoned mine pits.