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061196B.GEO  + Source:  ONR Asia +
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Contributory Categories: GEO

Country: Indonesia 

From:  Nikkei Weekly
       10 June 1996
       p. 22  

KEYWORDS: Indonesia; Offshore Oil and Gas, Mineral resources

Government looks to Nonoil Options

Special to the Nikkei Weekly

JAKARTA - With Indonesia's oil and gas wells drying up, the
government has begun pushing miners to dlg'UP the country's other
mineral resources.
     While responsible for bringing in 20 % of the country's
foreign-currency gas, oil and gas exports are falling off
quickly.  At a recent Ministry of Mining and Energy meeting,
President Suharto estimated Indonesia will become an oil importer
between 2005 and 2010.

     Indonesia's oil production peaked in 1977 when 1.7 million
barrels were produced a day.  It has gradually declined every
year to about 1.5 million barrels. Government estimates show it
will continue to decline despite the discovery of new wells.
     At the same time, officials predict output at the Arun gas
field in northern Sumatra, which now produces about 13 million
metric tons of liquefied natural gas annually, will be cut'm half
by 2010.  
     To compensate, the government is betting on exploitation of
huge gas reserves on Natima island.  Some estimates suggest it is
capable of producing more than 14 million tons of liquefied
natural gas annually.
       Deep and diluted
     But experts say it will be hard to achieve that potential
with current technology because the gas is more than 70% carbon
dioxide and lies below deep seas.
     Another headache for the govemment is the declining
performance of nonoil mining exports despite government efforts
to lift the sector's output-    
     Nonoil export growth between fiscal 1985 and fiscal 1993
jumped nearly 50% per year.  In fiscal 1994, the rate o growth
fell to 9% and 16% in fiscal 1995.  Moreover, economists and
business pie have predicted the growth rate would fall this
fiscal year. 
     To restore the momentum, the govermnent has plans to
intensify exploration of huge, mostly unexplored, nonoil mineral
reserves including coal, nickel gold, copper, silver, quartz and
     This would make Indonesia one the most promising frontiers
for big miners.
     Under the mining Provisions Of country's sixth five-year
developmen plan, set to end in April 1999, the government hopes
to increase gold production from 42 tons to 70 tons annualy,
silver from 93.5 tons to 143 tons, and copper concentrate from 1
million tons to 1.7 million tons.
     Nickel mining is likely to experience    the fastest growth,in
the short term.  PT Inco Indonesia, a subsidiary of International
Nickel Co. of Canada said:  the firm's production should jump
from 100 millionn pounds annually now to 150 million pounds.
     Officials at Inco, the only nickel miner in Indonesia, said
the sharp increase introduction is being driven by demand for
stainless steel which, they said, is 35% nickel.
     Such bright prospects have caused the number of applications
for mining concessions to jump from the teens to hundreds in the
past two years.  Most applicants are foreign that have dommated
Indonesia's mining since the colonial era.
     Locals shut out
     About 900% of Indonesia's mineral mining is performed by
foreign companies.  Large expenses and big risks combine to shut
out many local concerns from the mining industry.
     "To please the miners, we have dramatically cut the
licensing-procedure time from about three months to two weeks,"
said Kuntoro Mangkusubroto, director general of general mining at
the Ministry of Mining and Energy.
  That kind of reform has put Indonesia among the nations with
relatively low risks for miners.
     According to a survey by Australia's Mining Monthly,
Indonesia in 1995 ranked fifth-lowest among risky nations after
Chile, Argentina, Australia and Canada.
     As anywhere, the current interest in mining wasn't hurt by
the discovery by Bre-X Minerals Ltd. of Canada in 1995 of the
world's largest single gold deposit on Kalimantan, in Indonesia's
north, which is estimated to contain about 1,100 tons. 
     Philip J. Shah, a Finance consultant at PT Sarana Kajian
Arta, said the government can keep up the mineral rush by
providing tax incentives to those granted by other mineral-rich
     Currently, tax laws treat mining like other business despite
the increased risk and longer wait for a return on investment.-
That puts Indonesia among the highest-taxing mineral-rich nations
in the world.
     Gold may glitter but it will be coal that the government
ultimately counts on to supplant the shrinking oil reserves.
     The country has 36.5 billion tons in coal deposits that can
be exploited for more than five decades.
     As a result, the government has begun a large campaign to
encourage households and small companies to use coal instead of
kerosene and wood as energy sources.
     Early next year, the government expects to inaugurate the
first coalbriquette factory industry capable of producing 120,000
tons a year.  Indonesia needs about 500,000 coal briquettes every
     A study by the mining mmistry predicts the campaign will
push down oil's share of domestic energy supply from 39% to 29%
by the year 2001.  Coal's share will jump from 6% to 14%, the
study forecasts.
     But experts warn that the intensification of nonoil mining
can cause a wide range of environmental damage since the
activities take place everywhere from deep valleys to high
     "This is why I demand the government impose pollution or
environimental-damage taxes on mining businesses, especially
since there are no mining activities that do not cause environ-
mental damage," said Hartoyo Wignyowiyoto, senior economist
at Asia-Pacific Economic iconsultancy, a Jakarta think-tank.

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