NUSA DUA, Indonesia, Dec. 14 -- Indonesia's mining sector has attracted 53 trillion rupiah, or $6 billion in bank financing up to September this year, surpassing 43 trillion rupiah for all of 2009, and is set to grow further in coming years due to strong demand and escalating prices of minerals.
The figure far exceeds the 14 trillion rupiah that banks loaned to the mining industry in 2006, figures from Bank Indonesia show, despite current uncertainties over the country's new mining law.
The growing industry has persuaded banks to extend loans to develop mines and for support activities such as transportation, said Francisca Nelwan Mok, managing director of corporate banking at Bank Mandiri , Indonesia's top lender.
"Indonesia's mining industry has been growing fast in the last five years because of demand from markets like China and India," Mok said at a mining conference.
FINANCING A CONCERN
Financing has been one of the main concerns in launching projects in Indonesia, particularly in the absence of longer-term mining deals -- contracts under the 1967 mining law that has been abolished under a new mining law issued in 2009 and replaced with shorter-term mining permits.
But with prices of mining resources such as coal hitting more than $100 a tonne, along with strong economic growth in Indonesia and Asia, less focus will be given to risks surrounding the new regulations, bankers said.
"Indonesia is Indonesia. It is still considered a high-risk area," said Vincent Poizat, director and head of mining at ING Bank N.V. "There is strong interest, as, from a banking perspective, I don't see any new issues coming out from the new mining law."
Financing for mining will be mostly on coal projects, which are easier to extract compared with base metals such as copper and nickel.
Some regional governments and private companies have launched railway projects in in the main coal-producing regions of Kalimantan and Sumatra.
"There will be more interest for financing mining infrastructure. Banks view it as more safe and less-risky because there is government back-up for projects in railway, ports or logistic," said Achmad Reza Widjaja, chief economist at PT Bumi Resources , Indonesia's top coal producer.
Indonesia has forecast coal output to increase by 19 percent next year, while tin output is expected to rise to 95,097 tonnes from 54,646 tonnes this year. [ID:nL3E6N80DI]
STABLE ECONOMY TO BOOST LENDING
Indonesia has struggled to attract foreign investments into mining in recent years due to widespread corruption and uncertainties surrounding the mining regulations.[ID:nL3E6N70M7]
But Southeast Asia's largest economy is expected to grow more than 6 percent this year, which together with increased political stability, are attracting strong foreign capital inflows to its bonds and stock markets as well as the mining sector, as investors and banks hope for further reforms.
"Indonesia has a stable economic outlook and is fundamentally sound," said Bumi Resources' Reza. "If this continues until 2014, it will boost interest."
While the regulations contain many unresolved issues which could delay projects and the award of tenders and permits, analysts said that they offer investors some direction on the government's mining policy.
"Some banks are still very cautious about giving loans because the government has not yet rolled out the rest of the regulations," said Reza. "But it will change when all the regulations are well in-place."
One key regulation still in the pipeline is the process of tendering mining areas that will be crucial for investors to obtain mining permits in the future.