Indonesia to pass mining law mid-Dec -lawmaker

By Fitri Wulandari

JAKARTA, Nov 12 (Reuters) - Indonesia's parliament expects to pass a long-delayed mining law by the middle of next month, a legislator said on Wednesday, a move that could provide more certainty for firms considering investing in the mining sector.

The mining law, which has been in the works for several years, has been held up by a parliamentary special committee which has struggled to agree on whether to apply the law only to new contracts or to existing contracts.

Parties in parliament have now agreed that existing contracts must follow the new law after a transitional period, said Muhammad Najib, a member of the committee.

"We expect to pass the law in mid-December," Najib told reporters.

The law would provide a transitional period for up to five years, depending on the type of mining products, in order for existing mining companies to adjust to the new law, Najib said.

"We don't want to cause concern among existing mining companies, but on the other hand we need to ensure revenue for the state," Najib said.

Uncertainty over the new mining law has hampered the development of the country's rich mining resources.

Indonesia has some of the world's largest deposits of gold, tin, copper, and nickel, and several leading international mining firms, including Freeport-McMoran Copper & Gold (FCX.N) have operations in the country.

But investors question whether the new law will greatly help attract fresh investment due to contentious items such as a provision in the law that will shorten mining contracts to 20 years with an option to extend for an additional 20 years.

The current working contracts are valid for 30 years with an option to extend by a further 20 years.

Under the new law, mining investors are also required to process all mining products into metal locally either by setting up their own smelters or using another smelter for processing, a requirement which investors say would inflate investment costs.

But government officials argue that the new law would boost revenue from the mining sector as Jakarta is keen to gain greater control of its natural resources.

The government said late last year that it expected investment in geothermal and mining to reach $1.55 billion in 2008, compared to $1.35 billion in 2007.

On Nov. 4, the government signed a $1.1 billion mining contract with PT Jogja Magasa Iron, an Indonesian firm in which Australian miner Indo Mines Ltd (IDO.AX) has a 70 percent share, for an iron sand mining and pig iron smelter project.

It was the first mining contract sealed since the economic crisis in 1998. (Editing by Ed Davies and Peter Blackburn)