News: Impact of Indonesia's Regulatory Haul on Mining Industry

Indonesia's mining industry is undergoing a regulatory overhaul that is likely to weaken the operating and financial performance of mining companies in the country, said Standard & Poor's Ratings Services today in a report.

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The report, titled “Indonesia's Mining Law Of 2009 And Subsequent Regulations: Unearthing The Impact,“ offers an assessment on how the main provisions of the law and regulations are likely to affect the companies in the Indonesian mining sector--both locally and foreign owned.

“Although the mining law in 2009 only provides a broad framework, government regulations from later that year and 2010 provided greater clarity on both the spirit of the law and the possible credit impact for mining companies with Indonesian operations,“ said Standard & Poor's credit analyst Xavier Jean. KOMPAS.com

“Standard & Poor's does not anticipate immediate rating implications for the mining companies in Indonesia, since our ratings on them already incorporate varying degrees of regulatory risk,“ Mr. Jean noted.

Nevertheless, we believe specific regulations will affect some mining companies more than others and may have implications for domestic and foreign investments in the Indonesian mining industry.

“Some regulatory provisions have direct implications for the revenues, profitability, capital expenditure, and cash flows of mining companies in Indonesia,“ Mr. Jean said. “Besides increasing operating uncertainty for Indonesian mining companies, we believe the new regulations may also make the industry less attractive to foreign investors.“

Increases in operating costs, possible delays in awarding mining licenses due to the decentralized decision making, and domestic processing requirements may change the economics of long-term mining projects.

However, it is too early to quantify the impact of the new regulations on the credit profile of mining companies in Indonesia as the implementation of the mining law continues.

“The regulatory environment is still evolving, and the implementation of government regulations passed so far may differ somewhat from their original forms,“ Mr. Jean said.