Q+A-Indonesia mining sector faces election risks

(For more stories on the election click on [ID:nIDELECT])

By Fitri Wulandari

JAKARTA, July 7 (Reuters) - Indonesia has struggled to lure foreign investment to its mining sector in recent years, and the nationalist line on resource exploitation taken by politicians ahead of Wednesday's presidential election has hardly helped.

The mining industry is also awaiting details of regulations in a new mining law passed last year which was aimed at squeezing more from the country's rich mineral resources.

President Susilo Bambang Yudhoyono, who is widely expected to be returned to power, is seen as more open to foreign investment than his challengers, Megawati Sukarnoputri and Jusuf Kalla.

Here are some questions and answers on mining and the election.

IS INDONESIA GROWING MORE NATIONALISTIC OVER ITS RESOURCES?

Megawati has said she would take a tougher stance in contract negotiations with foreign resource firms if elected, singling out the Grasberg copper mine in Papua run by a unit of Freeport McMoRan Copper & Gold (FCX.N) for criticism.

Kalla has also said that "unfair" contracts with foreign resource companies should be re-negotiated.

The Yudhoyono administration, however, has previously said it would respect contracts.

Analysts say a more nationalistic stance on resources is no surprise during an election period, but it could mean Indonesia loses out on investment later on, particularly given the current scarcity of global capital.

WHAT ARE THE RISKS OVER THE NEW MINING LAW?

The government is currently drafting regulations on the law for presidential approval and has said it plans to issue them by October before a new government takes office.

Issuing the regulations is seen as crucial to give certainty to investors. In the case of an oil and gas law passed in 2001, it took three years to issue the implementing regulations.

The new mining law means that investors will be put on shorter-term mining permits rather than longer-term contracts of work, while they will also have to process minerals in Indonesia and to set aside some of their coal for the domestic market.

Foreign investors will also have to divest to local players some of their shares in a mining project after a period.