Protectionist Path in the Mining Sector to Increase Indonesia's Profit Share
There has been quite some commotion regarding Indonesia's mining industry in recent years. The New Mining Law of 2009 implied a number of rigorous changes that are controversial up to the present day. The law was designed to increase Indonesia's profits from its own abundant natural resources, a sector in which many foreign companies are active. For foreigners the new law contains a number of protectionist measures that make Indonesia's mining industry less appealing.
A number of important conditions that are stipulated in the 2009 Mining Law are the requirement to divest foreign ownership of mines to 49 percent after 10 years of production, and the ban on raw metal exports from 2014 onwards, forcing companies to process metal products first into value-added products in Indonesia before export is allowed. However, as it takes at least three years to build a smelter, the government is willing to provide temporary exemptions for companies that present firm plans to build a smelter.
Meanwhile, the export of raw minerals increased 19.71 percent in Q1-2013 to 30.7 million tons, with a total value of USD $1.38 billion despite the fact that the government set a 20 percent export tax on minerals in May 2012 to avoid large-scale exports ahead of the 2014 ban.
Initially it was reported that foreign companies that have been active in Indonesia's mining industry before the 2009 Mining Law came in effect - under long-standing Contracts of Work (CoW) - would not be obliged to adjust to the new law. However, recently the minister of Industry, MS Hidayat, said that these companies, which include Freeport Indonesia and Newmont, also need to comply with the new law.
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