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The Indonesian government’s move to update stringent rules over mining permits could encourage investment in the sector, after years of uncertainty.

Currently, miners are only permitted to discuss extensions to contracts over mining concessions two years before they expire, which has led to an exodus in debt and equity from the country’s resource sectors.

For commodity-dependent Indonesia, this has been tantamount to disaster, with the mining sector’s downturn being reflected in declining fortunes for the wider economy.

The energy and mines minister Sudirman Said has announced plans to at least double the extension period, opening the window of negotiation to between five and 10 years, a move which has been welcomed by many sectors of the mining and commodity financing industries.

Said outlined plans to extend contracts of work that govern contracts over larger mines. Experts say that while it will benefit some of the larger investors and producers, it is unlikely to make much difference to the smaller producers which have been going out of business in their thousands.

“It’s a step in the right direction. This is a stick of the government’s own making, they made the regulations in the first place,” Norman Bissett, foreign legal consultant at Jakarta law firm Hadiputranto, Hadinoto & Partners, tells GTR.

“The issues still are in the form the extensions will take: there’s still the view that they will take the form of a licence rather than a contract. So while it’s very much a step in the right direction, unless the investors can get comfort as to the form of the concessions’ extension, it’s still going to result in a degree of investor concern,” he adds.

Should the revision allow for contractual renewal, rather than licensing, it is likely to provide a carrot to investors, since they will be enforceable through arbitration. In the case of licensing laws, governments in mining sectors around the world have shown inclinations to act inconsistently, and in many cases revoke the permit and repatriate the mine.

“I think it will be early days to say how this may impact pricing. There are just too many uncertainties at the moment,” Ivone Hodiny, DBS Bank

The minister namechecked industry giants such as Freeport and Vale in his announcement, both of which have concessions due to expire within 10 years. Freeport in particular has been fretting over its giant Grasberg copper mine, which is due to expire in 2021, reports research group Indonesia Investments.

Further regulations in Indonesia dictate that in order to keep exporting copper, Freeport must invest in a smelting facility. Given the lack of leeway over contract extensions, the company has found itself in something of a bind in trying to attract finance.

It’s likely that if finance is to accelerate, it will be in areas such as project financing for large smelting facilities, the cost of which run into billions of dollars, as well as equity investments in large mines. However bankers are as yet uncertain as to how this might affect pricing.

“I would only say that with the many external factors that are simultaneously at play today, the geopolitical issues as well as the volatility of the markets, I think it will be early days to say how this may impact pricing. There are just too many uncertainties at the moment,” head of structured trade and commodity finance at DBS Bank Ivone Hodiny tells GTR.

One commodity trader says that while it will have a benefit for his upstream business, it is unlikely to reap any dividend for downstream, since pricing is still too low.

The Indonesian government has embarked on a campaign of regulatory reform in a bid to limit the amount of unprocessed raw materials leaving the country and to keep a check on the exact number of exports, with widespread corruption making official data hard to come by.

Critics have dismissed the regulations as heavy-handed, particularly at a time when commodity prices are already hollowing out the economy. However, some have praised the long-term goal, which would ultimately see Indonesia move up the value chain in terms of its exports sector.