Indonesia plans to issue a presidential decree to allow miners to carry out underground mining in its protected forest, a government official said on Tuesday, alarming green groups.

Indonesia has some of the world's largest reserves of minerals and is keen to increase revenue from the mining sector, which hosts international firms such as Newmont Mining Corp. (NEM.N) and Rio Tinto (RIO.AX).

The decree, which is expected to benefit dozens of mining firms, clarifies Indonesia's forestry law issued in 1999 that prohibited open-pit mining in protected forest areas but did not specify whether underground mining was permitted.

The presidential decree will give legal basis so that underground mining is allowed in protected forest areas, Bambang Setiawan, director general of mineral, geothermal and coal at the country's energy ministry, told reporters.

The existing law only forbids open-pit mining in protected forest areas, he said, adding that the decree was awaiting approval by President Susilo Bambang Yudhoyono.

Indonesia's conflicting mining and forestry regulations have resulted in considerable confusion over which areas are protected and which may be opened for exploitation.

Only 13 mining companies are now allowed to carry out open-pit mining in protected forest areas after former President Megawati Sukarnoputri issued a decree in 2004 allowing the firms, including a local unit of Freeport McMoRan Copper & Gold (FCX.N), to resume mining activities, including exploration, development and production in these areas.

The companies had obtained mining permits before the 1999 forestry law was issued and had proved that their projects were economically viable and had mining reserves.

The new decree would help attract mining investment, while protecting the environment, said M.S. Marpaung, director of engineering and environment at the energy and mines ministry.

It will encourage miners to carry out exploration to find new mineral resources that are often located in the forest, Marpaung said, adding that underground mining was suitable for Indonesia, given its extensive forest.

While acknowledging that underground mining has less impact on the environment, green groups said it should be limited to production forests designated for commercial purposes such as pulp and paper mills or timber companies.

The government has given up protected forests for open-pit mining to 13 mining firms. It should not worsen the situation by allowing underground mining in the areas, said Pius Ginting, mining campaigner of the Indonesian Environmental Forum (Walhi).

Protected forest still has rich biodiversity and we need it to reduce carbon emission, he said. Indonesia is estimated by conservation groups to have one of the world's swiftest deforestation rates.

Indonesia has mineable nickel reserves of 547 million tonnes, 112 million tonnes of bauxite and 43 million tonnes of copper, data from the mining and energy ministry showed.

Mineable reserves of tin stand at 336,911 tonnes, measured in terms of refined tin, while gold reserves were 4,341 tonnes, it said. (Editing by Ed Davies and Clarence Fernandez)

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