Massive Australian Investment Hinges on Law Change

JAKARTA ~ Billions of dollars of Australian investment to Indonesia hinges on new legislation being passed through Indonesia’s parliament, Australia’s trade minister said during a visit here this week.

Trade Minister Warren Truss said that about AUS$2.5 billion (US$2.1 billion) was currently invested in Indonesia by Australian companies.

“But there are many projects currently under consideration which would multiply that figure many times over – some of these projects are almost that big in themselves,” Truss told reporters on Tuesday.

“So there’s enormous potential with Indonesia’s new investment laws, its mining laws … to encourage investors to participate in Indonesia,” he said, speaking at the Ministry of State Enterprises in Jakarta.

“Most of these laws are still passing through the Indonesian parliament, so investors will require certainty and confidence about the regulatory regime that’s going to be in place before they are prepared to commit the money that will be necessary.”

An investment law passed by parliament in April included equal treatment for domestic and foreign firms in some areas and the right of foreign firms to seek redress through “binding” arbitration in cases of disputes with government.

The authorities, however, are still formulating a variety of regulations to support the law, including investment approval procedures and tax reforms.

“So as the laws come into place and as the confidence builds, these projects are likely to commence,” Truss said.

Truss presided over a ceremony on Tuesday that saw Australian fertilizer firm Incitec Pivot Limited sign a preliminary agreement with two Indonesian partners to investigate the feasibility of investing in a gasification plant to convert Indonesian coal into synthesized gas.

If it goes ahead, the project would see IPL invest US$700 million to $800 million in the plant, which would provide three fertilizer plants in Aceh with feedstock, electricity and steam.

The plants have a production capacity of more than 1.7 million tons annually but currently produce only 300,000 tons because of limited natural gas supplies, an embassy press statement said.

The pact was signed with Pupuk Sriwijaya, the holding company of Iskandar Muda, which owns the three plans, and the state-owned engineering company, Rekayasa Industri.

The feasibility study is expected to be completed by the first quarter of 2008.

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