On 22 June 2014, Indonesia Investments released the latest edition of its newsletter. This free newsletter, which is sent to our subscribers once per week, contains the most important news stories from Indonesia that have been reported on our website in the last seven days. Most of the topics involve economic topics such as an analysis of the rupiah performance, forecasts for inflation and the trade balance, the presidential election, governance in the mining industry, and more.

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The construction of smelting and refining facilities in Indonesia - as stipulated in the new and controversial 2009 Mining Law - remains troublesome because several mining companies have delayed construction pending the judicial review of the 2009 Mining Law by the Constitutional Court of Indonesia. Meanwhile, Indonesia's Association of Bauxite and Iron ore Entrepreneurs (APB3I) said that the construction of 5 bauxite smelters need to be postponed due to financial uncertainties.

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Indonesia's Minister for Energy and Mineral Resources Jero Wacik opened the possibility for Newmont Nusa Tenggara, subsidiary of US-based gold miner Newmont Mining Corporation, to resume exports of ore concentrates, provided that Newmont shows its commitment to build a smelter in Indonesia as in accordance with the new and controversial 2009 Mining Law. One of the targets of this new law is to boost Indonesia’s downstream mining industry by prohibiting export of unprocessed minerals.

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R. Sukhyar, Director of Mineral and Coal at the Indonesian Energy and Mineral Resources Ministry said that 184 mining business licenses (Indonesian: Izin Usaha Pertambangan, or IUP), needed for exploration and mining activities, have been revoked this June because of overlapping mining areas and illegal administration. The revoked permits concerned mining areas in Jambi (99 revoked licenses), South Sumatra (83), and South Sulawesi (2). This case is another illustration of weak governance in Southeast Asia’s largest economy.

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Pertamina Hulu Energi, subsidiary of state-owned energy firm Pertamina, has been officially appointed as the new operator of the Siak oil block in Riau (Sumatra) after the contract of Chevron Siak Indonesia (CSI) had expired on 27 November 2013. The Indonesian government decided not to renew the production sharing contract (PSC) with Chevron, instead appointing Pertamina Hulu Energi as new operator of the oil block (in line with the government's aim to have more domestic control over the country's natural resources).

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R. Sukhyar, Director General for Coal and Mineral Resources at the Indonesian Ministry of Energy and Mineral Resources, said that Freeport Indonesia and Newmont Nusa Tenggara, two of the largest copper miners in Indonesia, have shown their commitment to build refining facilities (in line with the 2009 Mining Law) by agreeing to transfer a total of USD $140 million to the government as a deposit guarantee. Freeport will transfer USD $115 million, whereas Newmont will transfer the remaining USD $25 million.

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Indonesia Investments updated the company profile of PT Vale Indonesia Tbk. Vale Indonesia, a subsidiary of the world's second-largest mining company headquartered in Brazil, is Indonesia's largest nickel producer. The company explores, mines, processes and produces nickel in matte, an intermediate product, from lateritic ores at its mining and processing facilities near Sorowako on the island of Sulawesi. At end 2013, Vale Indonesia had proven mineral reserves amounting to 94.2 million metric tons (Mt) and probable mineral reserves of 33.3 million Mt.

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The government of Indonesia has been preparing strategies to face Japan's possible complaint to the World Trade Organization (WTO) about Indonesia's recently introduced export ban of mineral ore (UU Minerba No. 4 - 2009). A special team from Indonesia's Trade Ministry, headed by Gusmardi Bustami, has been set up to handle the dispute. Japan feels forced to bring the export ban case to the WTO because its industry is highly dependent on the supply of certain raw Indonesian commodities, particularly nickel.

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Indonesia’s external debt in February 2014 amounted to USD $272.1 billion, thus having increased 7.4 percent (year-on-year) from the same month a year earlier. Outstanding external debt as of end-February 2014 consisted of public sector debt (USD $129.0 billion) and private sector debt (USD $143.1 billion). The growth pace of Indonesia's external debt in February 2014 was slightly higher than the 7.2 percent (yoy) growth pace recorded in January 2014. These data were taken from Bank Indonesia's website.

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The government of Japan is most likely to file a complaint to the World Trade Organization (WTO) about Indonesia's recently introduced ban on the export of mineral ore (UU Minerba No. 4 - 2009). Although the WTO is yet to receive a formal letter of protest, Indonesian newspaper Investor Daily reported on Friday (04/04) that Trade Minister Muhammad Lutfi has already received a letter from Japan's Minister of Foreign Affairs in which the step was announced. Japan feels forced to bring the case to the WTO as its industry is affected by the ban.

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Sales of United Tractors, the largest distributor of heavy equipment in Indonesia and part of the Astra Group, continue to climb in 2017. In fact, the management of United Tractors now expects full-year 2017 sales to exceed their initial forecast. Sara Loebis, Corporate Secretary of United Tractors, said the company has therefore raised its forecast for full-year heavy equipment unit sales from 3,000 to 3,200 units.

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The non-performing loan (NPL) ratio in Indonesia's mining and excavation sector has risen drastically over the past year. Moreover, there seems few room for an improvement of the NPL ratio in this sector on the short term because mining and excavation companies are expected to remain amid tough conditions in the remainder of the year. The NPL ratio is a key indicator for measuring bad loans.

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Overall, low crude oil prices are problematic for stock markets as low prices indicate the world economy is not expanding on full throttle. This curbs investors' risk appetite. Particularly those companies that are active in the oil industry (or in related industries) will likely face declining share prices. However, there are also positive effects of low oil prices. For example consumers' purchasing power should improve because prices at the gas pump are lower, while some companies can curb operational costs. Hence, consumer and transportation stocks should actually benefit from low oil prices.

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Reportedly, the government of Indonesia will hand Freeport Indonesia a temporary export permit for copper concentrate shipments, hence being able to bypass (for the moment) Indonesia's controversial ban on mineral ore exports. Freeport Indonesia, the local unit of US mining giant Freeport McMoRan, has been unable to export copper concentrate for the past three months, thus missing out on about USD $1 billion in revenue. Due to the drop in exports, mining activities at the Grasberg mine in Papua fell drastically, giving rise to concern about layoffs.

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An interesting story was released on Bloomberg Markets Asia on Wednesday (29/03) about the sliding role of commodities in the Indonesian economy and the need for Southeast Asia's largest economy to find a new growth engine (or better: several new growth engines) that will take the country to economic growth levels of +7 percent year-on-year (y/y) as once pledged by Indonesian President Joko Widodo during his presidential campaign in 2014.

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The Indonesian Mining Institute (IMI) is concerned about foreign perceptions of Indonesia's mining sector. According to the Fraser Institute, a Toronto-based public policy research and educational organization, Indonesia now ranks lowest in terms of the "state of the investment climate in the mining sector across the world". A new survey, conducted by the Canadian think-tank, shows that Indonesia's recently introduced government policies (stemming from the New Mining Law) that affect the activities in the mining sector has seriously undermined foreigners' confidence in a conducive investment climate in Indonesia's mining sector.

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Uncertainty about the continuation of the company's copper concentrate exports could imply that Freeport Indonesia needs to terminate operations at the Grasberg mine in Papua. Currently, shipments of copper concentrate from the mine to the smelter in Gresik (East Java) have ceased, while the company's storage facilities are full to the brim. Part of workers at the Grasberg mine have been sent home as the processing plant has not been producing any concentrate since Friday (10/02).

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State-controlled, yet listed on the Indonesia Stock Exchange, tin producer and exporter Timah is expected to experience improving corporate earnings in 2017 supported by recovering production volumes and the rising trend of global commodity prices. Danareksa Sekuritas expects the price of refined tin to rise 12.4 percent to USD $20,000 per ton this year, followed by a further rise to USD $21,000 per ton in 2018. Meanwhile, Danareksa Sekuritas also expects Timah's production volume to rise around 25 percent (y/y) to 28,000 tons this year (slightly below the company's target of 30,000 tons).

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On Thursday (12/01) the government of Indonesia said it eased regulations concerning the controversial ban on exports of metal ore and concentrates of other minerals. Based on the New Mining Law that was revealed in 2009, Indonesian shipments of mineral ore would be banned starting from January 2014. This policy was designed in order to boost the development of domestic processing facilities (smelters) and become an exporter of value-added mining products (hence becoming less vulnerable to volatile prices of raw materials).

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Chances are big that Freeport Indonesia will conduct an initial public offering (IPO) on the Indonesia Stock Exchange to comply with the divestment requirement. Freeport Indonesia, the local unit of US-based Freeport-McMoRan Copper & Gold, operates the vast Grasberg mine in Papua. This mine is the world's largest gold mine and third-largest copper mine. The Indonesian government's divestment requirement is one the demands for starting contract extension negotiations in 2019.

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