News reports out of Jakarta say the mining bill was passed last night, after three years of deliberations.

Under the new law, the current Indonesian “contract of work” system has been overturned in favour of a system that will give five-year exploration licenses to companies.

These licenses can be transferred into mining rights but critics of the scheme say it will deter foreign companies from investing in Indonesia.

Dow Jones Newswires reported the Indonesian Mining Association had criticised the law, saying it would drive away foreign companies.

The association’s executive director Priyo Pribadi Soemarno said the law seemed particularly unwise given the global financial crisis.

"This decision says 'no more investment, we don't need more investment’,” he said.

Criticism of the law stems from its inability to offer long-term security to investors.

Additionally, the law stipulates that smelting and processing facilities need to be located in Indonesia, but this investment could be difficult to achieve without more secure long-term contracts.

The new law will also require miners to seek permits from local governments as well as the central government, and obtain new licenses for each stage of exploration and development, according to news reports from Jakarta.

Additionally, the draft of the law had higher royalty payments of around 10%, Dow Jones reported.

Mining companies were also concerned they would have to renegotiate current contracts of work.

Australia-listed Straits Resources owns a 47% stake in Indonesia coal miner Straits Asia Resources, which owns two producing open cut coal mines – Sebuku in South East Kalimantan and Jembayan in East Kalimantan, Indonesia.

Another coal play, Handini Resources, recently listed in Australia with an operating thermal coal mine in Sumatra.