Blessed With Gold Finds, Southeast Sulawesi Province Tries to Avoid the Resource Curse

Kafil Yamin, Jakarta Globe 9 Feb 09;

Farms and fields lie abandoned, and towns, villages and streets in Southeast Sulawesi Province have been unusually quiet ever since the discovery of vast gold deposits on Kabaena Island in Bombana district, 230 kilometers from the provincial capital of Kendari.

People from all over this predominantly rural province of some 2 million people, as well as from other provinces, have been abandoning the drudgery of their usual jobs and flocking to the area in a hectic, disorganized gold rush.

Since gold was discovered by local people in early September, Kabaena — an island of lush, virgin forests — has become an economic magnet, drawing hundreds of thousands of people hoping to strike it rich.

Southeast Sulawesi’s governor, Nur Alam, said there gold in the area worth an estimated Rp 277 trillion ($19.5 billion). He expressed confidence that “the people of Southeast Sulawesi are set to enjoy an era of prosperity if our natural treasures are well managed.”

Indeed, the province should be one of Indonesia’s richest regions, given its extensive nickel, asphalt and timber resources. Its nickel deposits alone are estimated at 97.4 billion tons, worth some Rp 23 trillion, while its 3.8 billion tons of asphalt deposits are believed to be worth Rp 1.841 trillion.

Besides these riches, Southeast Sulawesi also boasts bountiful agricultural, fishing and forestry resources.

“We really have the potential to be among the most prosperous people in the world,” the governor asserted.

But despite its abundant natural blessings, like so many other resource-rich provinces across the country Southeast Sulawesi continues to be impoverished. Official data put the province’s poverty rate at about 35 percent, though many believe that the real figure is significantly higher. A lack of access to education and medical services, combined with environmental degradation and a stagnating rural economy, are keeping people down.

Many are worried that the discovery of the Bombana gold will only benefit giant mining companies, with little money trickling down to the local people.

State-owned mining firm PT Aneka Tambang Tbk, or Antam, Australian gold miner Rio Tinto Ltd., and PT Bakrie Prima Moramo are among the major mining companies that have already set up shop in the province, and to date they have reaped billions of dollars from exploiting its mineral resources.

In 2007, Antam’s total profit from all its operations was Rp 3.7 trillion, while Moramo, which quarries marble, earned Rp 2.4 trillion from Southeast Sulawesi alone.

Governor Nur Alam said that 35 percent of Antam’s overall revenue, and 27 percent of Muramo’s revenue, are derived from their operations in Southeast Sulawesi. However, under the previous mining concession Antam secured with the central government before Nur Alam took office, as late as 2007 the company only paid Rp 16 billion annually in royalties to the province.

In an interview with the Jakarta Globe in Jakarta, Nur Alam said: “There was something seriously wrong with the profit-sharing arrangements with the mining companies. And this had been going on for decades.

“The agreement [with the central government] was opaque and blatantly unfair,” Nur Alam complained. He said that after taking office he forced Antam to renegotiate the deal.

After a series of tough negotiations, Antam agreed to increase its annual payment to the province from Rp 16 billion to Rp 111 billion.

La Ode Kamaludin, who took part in the negotiations and serves as the governor’s special investment advisor, said Antam had no choice but to meet the governor’s demands as they were calculated based on real figures.

“We confronted them with the fact that 35 percent of Antam’s annual profit came from its operations in Southeast Sulawesi, so the administration was entitled to the Rp 111 billion per year based on the current profit-sharing arrangements,” Laode said.

The governor said he also managed to increase the provincial budget from Rp 756 billion to Rp 1.02 trillion in 2008 following an agreement with the central government to boost transfers. He has also expanded the local tax base.

The area’s newfound gold is not the only resource attracting attention.

Nur Alam granted Rio Tinto a 4,000 hectare coal mining concession in the province, and he has said he is considering expanding the concession even further. India’s Jindal Stainless Ltd. has invested $800 million in a local nickel mine, and a Middle Eastern conglomerate, the Saudi Binladin Group, is in the preliminary stages of establishing a 100,000 hectare rice cultivation project.

Rio Tinto has also committed to invest $2 million in a nickel mine that Nur Alam says will employ some 8,000 workers.

Still, not everything is rosy. Most of the province’s natural wealth is hidden within its protected forests. More investment means more felling of trees and destruction of these areas.

Some 68 percent of the province is covered by forest, much of it enclosed in national parks, nature reserves and protected forests that, at least on paper, are off-limits to mining.

Kabaena Island, where the Bombana gold rush is focused, is largely comprised of protected forest. And according to Hartono, chairman of the Indonesian Environmental Forum, or Walhi, nickel mining licenses being issued on Lemo Island in Kolaka district overlap with the Padamarang Marine Reserve.

The governor said that local autonomy legislation limited his power over district heads and made it difficult for him to curb further forest destruction. Many district heads in Indonesia, particularly in traditionally impoverished areas, will do just about anything to increase local revenues, often without regard for environmental destruction.

It is clear, however, that as provincial governor Nur Alam also has a vested interest in expanding of the mining sector, especially given the hope the people of Southeast Sulawesi have riding on it.