UPDATE 2-Indonesia says no decision on mining divestment rule

Wed Nov 28, 2012 8:32am EST

* Comments seem to contradict mining minister's statement

* Investors have complained about policy uncertainty

* Changing the rules would be difficult - S&P

By Neil Chatterjee and Yayat Supriatna

JAKARTA, Nov 28 (Reuters) - Indonesia is considering whether to extend a divestment deadline for foreign mining companies beyond 10 years but no decision has been made, Chief Economic Minister Hatta Rajasa said on Wednesday.

The government of Southeast Asia's largest economy has issued a series of mining rules this year in a bid to reap more profit and promote domestic industry but investors have complained about policy uncertainty and the latest comments appeared to contradict a statement by another minister.

Energy and Mineral Resources Minister Jero Wacik said the government had already decided to extend the deadline under which companies must sell down stakes in mines and increase domestic ownership, making conditions more favourable for foreign owners.

Rajasa coordinates economic policy in President Susilo Bambang Yudhoyono's government.

Companies must sell down stakes in mines and increase domestic ownership to at least 51 percent by the 10th year of a mine's production.

The divestment rule announced in March is part of a global trend for mineral producing countries to push for more cash and clout.

Indonesia is a leader in nickel ore, thermal coal and refined tin exports, while bauxite exports have spiked. Overall, the mineral sector including coal is worth $93 billion and contributes 12 percent to Indonesia's gross domestic product.

The country is favoured by emerging market investors and recently regained investment grade status.

CONFLICTING MESSAGES

"There's an idea to extend the divestment period beyond 10 years but no decision has been made yet. The settlement of contract renegotiation remains a priority," Rajasa told reporters.

He was referring to talks between the government and some of the most prominent mining companies operating in Indonesia including Freeport-McMoRan Copper & Gold, Newmont Mining Corp and PT Vale Indonesia Tbk.

Local partners would benefit from the March divestment rules but they will hurt investment by hitting miners who had already spent potentially hundreds of millions of dollars on exploration, according to foreign miners.

"We are going to prolong the (divestment) period," Wacik said. He gave no further details.

The government's investment chief Chatib Basri told Reuters he had suggested to the mining ministry that it consider extending the divestment period to 25-30 years and carrying out a study to determine the best timeframe.

It would be hard to change the divestment rules because of their significance in terms of government policy, Standard & Poor's Asia Pacific corporate ratings associate director Xavier Jean said.

"The divestment regulation is probably the highest profile regulation in the sector and the one that strikes most chords in the Indonesian electorate because it pertains to ownership of the nation's resources," he said.

"These conflicting messages (from government officials) have blurred the picture further for potential domestic and foreign investors," he told Reuters.

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