Indonesia to limit foreign ownership stake in mines at 49%

A decree signed by President Susilo Bambang Yudhoyono sets a gradual timetable for the change, which will give foreign investors ten years from the start of production to reduce their stake. Investors who wholly own mines in the country must sell 20% to local investors - including state enterprises, provincial enterprises or domestic private companies - over the next six years. At least 30% must be locally held by the seventh year, 37% in the eighth year, 44% in the ninth year and 51% in the tenth year.

The new policy will apply to new mining contracts between the government and foreign companies, and to foreign companies that renew their existing contracts.

"The aim is the state has to get more," said the country's Mining Minister, Jero Wacik, according to the BBC. "For new investment it will be simple, but for existing investment there must be renegotiation."

Infrastructure law expert Kate Terry of Pinsent Masons, the law firm behind Out-Law.com, said the announcement was indicative of a wider international trend.

"Whilst an unexpected development, the stance Indonesia is taking on foreign investment reflects the international trend for greater national control over resources and the revenues they generate," she said. "There is still vast opportunity for investment in Indonesia, and local participation is often a key factor in making foreign investment a success."

The Grasberg Mine, located in the Papua province near Puncak Jaya, is the largest gold mine and third largest copper mine in the world. It is currently over 90% owned by US mining company Freeport-McMoRan, with the Indonesian Government owning the remaining share.

In a statement, the company said it was confident that the Indonesian government would honour its existing contracts but that it had already begun voluntarily divesting some of its share.