16 January 2022 (closed)
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Although Indonesia continues with its plan to ban the export of raw minerals from 2014 onward as stipulated by the 2009 Mining Law, the government is studying the possibility to exempt companies temporarily from this rule if they show serious intentions to build processing factories or smelters in Indonesia in order to produce value-added products. Indonesia is still mainly a raw commodity-exporting country and thus misses out on value-added revenue while being more susceptible to volatility in commodity prices on the global market.
In order to develop Indonesia's downstream industries, the government is planning to introduce a number of restrictions in its mining sector from 2014 onwards (stipulated in the 2009 Mining Law). These restrictions - having nationalist tendencies - include the ban on raw mineral ores exports as well as the limitation of foreign ownership in Indonesian mining companies. The latter, particularly, is a concern for foreign investors as it reduces profit margins, while investments in the developing stages remain high.
Thamrin Sihite, Director of the Minerals and Coal Department within the country's Ministry of Energy and Mineral Resources, announced that the government is studying the possibility to exempt specific mining companies from complying with the ban on raw mineral exports. In order to be eligible for this exception, companies should be able to prove their commitment to the Law. Their commitment can be proven by providing the government with the results of a feasibility study or by already having conducted the groundbreaking of a smelter factory.
The ban on raw mineral exports from 2014 (as stipulated in the 2009 Mining Law) came as a shock to Indonesia's mining sector. Many players complained that the government did not provide enough time to adjust the sector to the new context. The establishment of smelters cannot suddenly be realized within a few years, particularly as there are still many regions in Indonesia that lack a decent supply of electricity. Moreover, in recent years there, a lack of exploration has been detected in Indonesia's mining sector. This also implies risks for the future of the country's smelting businesses.
In a recent survey (conducted by the Fraser Institute) that assesses the state of the investment climate in the mining sector in 2012-2013 in countries around the globe, Indonesia is ranked at number 96. Tax and regulatory uncertainties in Indonesia's mining sector are cited as reasons for the low ranking. As investments in the mining sector are capital intensive and long-term in nature, investors need a clear legal framework that is not susceptible to sudden changes due to political sentiments.