Weak Governance in Indonesian Mining Sector: Overlapping Mining Areas

Before implementation of the 2009 Mining Law, the central Indonesian government had the exclusive power to issue mining permits. However, the new law stipulates that this power has been transferred to the regional governments. This is in line with the philosophy of the Reformasi-period (which involved the decentralization of power from the central to the regional governments) to give a greater voice to local administrations regarding the handling of local natural resources. However, the quality of governance at the local level is considerably worse than that at the central level. The process of decentralization in fact not only involved decentralization of power to the regions but also the decentralization of corruption (during the authoritarian Suharto regime, corruption had a more centralized structure as local administrations always faced the threat of repercussions from higher up the political chain if they would become too greedy thus resulting in a form of self-control).

The Energy and Mineral Resources Ministry now states that over half of total mining licenses that have been issued since May 2011 are labelled ‘problematic’. In total, there have been 8,475 issued mining licenses since May 2011, implying that more than 4,000 licenses are not in accordance with the standard procedures (as required by law), resulting into overlapping concession areas.

The country’s Corruption Eradication Commission (KPK) has been requested by the ministry to assist in the monitoring of the license permitting process for mining companies. Recently, research of the KPK showed that flaws were detected in tax income from the mineral and coal sector (tax registration number, or NPWP, inaccuracies and false production data resulting in miscalculated tax).

This weak form of governance comes despite the government’s recent verification program on mining areas. Since mid-2011, the Energy and Mineral Resources Ministry has conducted a nationwide verification program, which involves the issuance of a ‘clean and clear’ status to mining companies when corporate activities are in line with the government’s environmental policies, free from overlapping land rights, and are conform to all tax and non-tax financial obligations. In total, 10,918 IUPs are currently in use nationwide, 6,042 of which have received this ‘clean and clear’ status.

Previously, Sukhyar had announced that warning letters have been sent to 136 mineral and coal transportation business license holders on the subject of the failure to report corporate activities.

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