17 November 2019 (closed)
USD/IDR (14,069) -29.00 -0.21%
EUR/IDR (15,513) +3.99 +0.03%
Jakarta Composite Index (6,128.35) +29.40 +0.48%
The government of Indonesia is yet to find a middle way between encouraging the development of processing facilities for the country's mining output and the relaxation of mineral ore exports. Based on Law No. 4/2009 on Mineral and Coal Mining (New Mining Law), exports of mineral ore should have been fully banned in 2014. However, due to the lack of domestic smelting capacity a last-minute regulation was signed in early January 2014 by former Indonesian President Susilo Bambang Yudhoyono that softened this ban.
Through this last minute regulation exports of copper, manganese, zinc, lead, and iron ore concentrates were allowed until 2017 (when the ban would be implemented in full force). However, in order to be eligible to resume exports of these mineral ores, exporters are subject to a high and progressive export tax, while they also need to show evidence that proves their commitment to build domestic processing facilities. The main aim of Indonesia's New Mining Law is to reduce Indonesia's dependence on raw commodity exports, boost smelting development across the nation (implying the production and export of mining products that are higher up in the value chain) and - more generally - enhance profits (from the country's natural resources) for Indonesia (for example by curtailing foreign ownership in mining companies: mandatory share divestment rule).
Last week, however, government officials announced that the Indonesian government may relax the full mineral ore export ban further as the development of smelting facilities in Indonesia over the past two years has not lived up to expectations due to the world's weak commodity prices. Bambang Gatot, Director General for Coal and Minerals at Indonesia's Energy and Mineral Resources Ministry, confirmed on Friday (26/02) that the government will evaluate the situation soon and will formulate policy that takes into account all aspects (after discussing matters with the House of Representatives, or DPR). Previously, Indonesian Minister of Energy and Mineral Resources Sudirman Said stated that the government is in need of revising the New Mining Law as persistently weakening commodity prices since 2011 have resulted in miners' reluctance to develop smelters. In this context a full export ban for mineral ores would imply billions of US dollars in lost revenue (for both miners and the government).
Although the relaxation of this mineral ore export ban makes sense given the current global context, a revision would also be another embarrassing flip-flop that damages the credibility of the Indonesian government. Reevaluation of the mineral ore export ban adds to uncertainty in the country's mining sector and increases investors' confusion about government policy and the government's commitment to materialize its own policies. From the start the New Mining Law was highly controversial as it was in conflict with miners' existing (long-standing) Contracts of Work. Reluctantly major miners such as Freeport Indonesia and Newmont Nusa Tenggara engaged in renegotiations of their contracts in 2014 in order to make these contracts in line with the New Mining Law (this included the start of the construction of a smelter in Gresik, East Java). Refusal to renegotiate existing contracts would jeopardize the extension of mining contracts in the future.
Smelter Development in Indonesia per 2015:
|6-10||Environmental Impact Analysis||9|
|31-50||Half Way through Construction||13|
The total of 72 smelters that are being constructed or have been completed over the past year consist of manganese smelters (3), lead & zinc smelters (4), kaolin & zeolite smelters (4), iron smelters (8), bauxite smelters (7), zircon smelters (11) and nickel smelters (35).
Source: Bisnis Indonesia