New Forestry Regulation Opens Protected Forest Areas for Mining and Other Strategic Activities
March 25, 2010
The Indonesian Government issued Government Regulation No. 24 Year 2010 ("
GR 24") in February which allows mining, power plants and other projects deemed strategically important (such as toll roads, telecommunication network and broadcasting facilities constructions) to take place within protected forest areas. The definition of "strategically important" activities, to be clarified in a further implementing ministerial decree, is loosely defined as those that have significant impact on state sovereignty, defense, economic, social and cultural growth, and environmental preservation.
GR 24 should have positive implications for geothermal power plants (approximately 60% of geothermal sites in Indonesia are located in protected forest areas) as well as for a number of mining concessions that are currently not exploitable. Prior to GR 24, many geothermal operations and other mining concession companies were unable to operate within protected forest areas due to strict restrictions on their activities. Note that GR 24 only allows for underground mining activities in protected forest areas but does not permit open cast mining, which is more commonly used in Indonesia.
It is difficult to tell how effective GR 24 will be in practice. While 'in principle' licenses (
ijin prinsip) can be granted by the Ministry of Forestry for an initial period of up to two years, the full forestry 'lend-use' license (
ijin pinjam pakai) requires the approval of the House of Representatives ("
DPR"). Approvals from DPR have historically been difficult to obtain and subject to political considerations. There is, of course, no guarantee that such an approval will be granted at all.
This is a somewhat unsatisfactory foundation for major projects, and it will be interesting to see whether the DPR approvals are forthcoming in practice, or whether operators will (informally or through extensions granted by the Ministry of Forestry) continue to operate based on the 'in principle' licence after the initial two year period assuming approval for the full 'lend-use' license is still pending at that time. Project sponsors and financiers will need to consider their approach to this potential uncertainty when establishing their funding commitments. Additional implementing regulations may clear up some of the uncertainty, but in the meantime the key variable will likely rely on the ability of project sponsors to effectively lobby the DPR for the required approval.
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