By Fransiska Nangoy and Wilda Asmarini
JAKARTA (Reuters) - Miners have welcomed proposed changes to Indonesian mining rules under a new law aimed at boosting investment, though critics are concerned that the changes could underpin an expansion in polluting coal and threaten environment protection.
President Joko Widodo's sprawling "Job Creation" bill seeks to change about 80 laws affecting many business sectors, including mining, in order to fix rules deemed cumbersome for investors.
Indonesia is a top exporter of thermal coal, tin and nickel products, but overall mining investment dropped from 79 trillion rupiah ($5.8 billion) in 2017 to 59 trillion rupiah ($4.3 billion) last year, data from its investment board showed.
Miners are most supportive of a provision in the bill that would set a mining area's size based on a work plan submitted for government approval. The measure would replace current rules that would limit the size of coal mines to 15,000 hectares (37,000 acres) and other mineral mines to 25,000 hectares when miners convert their contracts to a new license.
The bill would also allow miners to receive an initial 30-year mining permit that could be extended periodically for as long as the mine's lifespan but only if the miner invests in downstream ore smelting or coal gasification projects.
"The draft is good for the investment climate in the mining sector because it is giving more legal certainty," said Ido Hutabarat, chairman of the Indonesian Mining Association.
"If the permit extension can be done for as long as the life span of the mine, the massive investment into downstreaming can be realized because lenders will also have more security for their loans," he said.
Indonesia has been trying to squeeze more out of its mineral resources and the new bill would also exempt royalties for miners adding value by processing or smelting ore or coal.
Hendra Sinadia of the Indonesia Coal Miners Association said the bill was a "positive step", but more details were needed, including on the pricing of gas produced from coal.
The government wants miners to process coal into gaseous dimethyl ether to replace liquefied petroleum gas imports.
Indonesia's largest coal miner PT Bumi Resources is conducting a study on a gasification project that could be worth more than $1 billion.
Dileep Srivastava, a director at Bumi, said the proposed legal revisions "would enable (Bumi) to progress its proposal forward" to the investment consideration.
The bill, however, may face "tough debate" in parliament, especially regarding the size of mining areas, said Ahmad Redi, a natural resources law expert at Tarumanagara University.
Some of the parliament representatives may say the changes to the mine sizes in the new bill violate the Indonesian constitution, which states that natural resources should be under the control of the state, he said.
Melky Nahar, the chief campaigner for the Mining Advocacy Network, said the bill is "a step backwards that is trapping Indonesia in a coal economy."
Removing the restrictions on the size of the mining concessions could cause serious social and environmental consequences to nearby communities, such as forced relocations, loss of livelihoods and ecological destruction.
Environmentalists also worry the new rules would remove incentives for miners to restore mining sites.
"When they can extend the license continuously, we see that as an opportunity for them to avoid reclamation responsibilities," said Iqbal Damanik, a researcher at environmentalist group Auriga.