New Mining Law of Indonesia: 3 New Smelters Ready for Production in 2014

Two other companies that are constructing smelters are a joint venture between Krakatau Steel and Antam, and secondly, Delta Prima Steel, which is a 100 percent foreign investment company (PMA). Smelters of both companies will process iron sands into sponge iron and are also located in West Kalimantan.

Head of the Indonesia Investment Coordinating Board (BKPM), Mahendra Siregar, ensured that the number of smelters that are ready for production in Indonesia will double in the next two to three years as smelter investment plans have been received from 28 companies, including the aforementioned three that are ready for production in 2014. All other 25 companies are currently preparing the construction of smelters.

"For the next two or three years, 25 smelters are being prepared. Three of these are bauxite smelters, five are iron ore smelters, 14 are nickel smelters, and three are copper smelters. The total investment value of smelter development by the 28 companies is approximately IDR 150 trillion (USD $12.4 billion)." Mahendra said in Jakarta on Tuesday (21/1). He added that it takes at least two years time to build a smelter, while the costs are not small. Therefore, entrepreneurs need certainty regarding enforcement of new Mining Law No.4/2009 on Minerals and Coal Mining.

"Apart from the investment permit application, they also have medium-term plans to expand their business. If Mining Law No.4/2009 is consistent, then they are going to invest." Siregar said.

The Mining Law No.4/2009 has been in effect since 12 January 2014 and prohibits the export of raw minerals. Exporters are thus required to build smelters in order to create value-added exports of mineral products. Although the law was already issued in 2009 and miners have had five years to prepare their smelting facilities, Indonesia's mining industry was not ready yet for full implementation of the export ban in January 2014. Therefore, the government gave exporters the opportunity to build smelters until 2017 while still allowing them to export mineral concentrates (of a certain content level). However, these exports will be taxed by a high and progressive imposition of export duties (up to 60 percent by the end of 2016).

Earlier, Deputy Minister of Energy and Mineral Resources, Susilo Siswoutomo, admitted that the government has been weak in supervising the construction of the smelters, resulting in a delay of development. In order to ensure that mistakes are not repeated, the government will form a special team charged with monitoring the construction of these smelters. Mineral concentrates exporting companies that are committed to build smelters will have to submit a security deposit denominated in US dollar in the form of bank guarantees. These companies must also present a road map for smelter development. Their commitment will be monitored each month by the government unit.

"They should be monitored on a monthly basis. If, for example, they do not start construction but, on the contrary, abandon their construction plans, then they will lose their deposited money." Siswoutomo said last week.

Siswoutomo added that up to now there are 253 companies - having an IUP (mining license) - that have signed a smelter development pact. Of these 253 companies only 178 have submitted proposals to build smelters. However, of these 178 companies only 112 have conducted a feasibility study, while only 28 (of the 112) have requested for permission to the BKPM to start construction of the smelters.

Further Reading:

• Export Ban Influence, Indonesia's Trade Balance May Record Surplus by 2017
• Indonesia's Mining Export Ban Impacts on Current Account Deficit in 2014
• Indonesia Might Delay Implementation of Mineral Export Ban by 3 Years
• Go-Ahead for Indonesia's Controversial Ban on Unprocessed Mineral Exports
• Indonesia Studying Temporary Exemption for Export of Raw Minerals

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