Investment in Indonesia’s mining sector is expected to drop by 70 percent next year due to the global recession, according to a mining industry official.
Priyo Pribadi Soemarno, executive director of the Indonesian Mining Association, said most mining companies would cut production and spending in 2009, with investment expected to fall by
70 percent. The impact of the global economic crisis is being exacerbated in Indonesia by delays in the enactment of a new mining law, causing investors to delay projects.
“The situation may end up being even worse if companies don’t become more efficient and the government fails to help out by cutting taxes and fuel prices,” Priyo said. “We expect mining production in Indonesia to drop by 30 percent, with nickel dropping the most by 70 percent, followed by copper by 40 percent.”
Bambang Setiawan, the Energy Ministry’s director general of mining, said on Wednesday the decline would be primarily driven by the global drop in commodity prices.
“Broadly speaking, some mining companies will temporarily halt production next year,” Bambang said. “However, there will also be new investment from companies that have completed their feasibility studies and are setting out on the construction phase.”
The companies he cited include PT Jogja Magasa Iron in Kulon Progo, Yogyakarta Province, which has estimated reserves of 273 million metric tons of iron ore, and a joint venture by PT Antam Tbk and PT Weda Bay Nickel in Southeast Sulawesi Province, which will have an estimated production of 66.5 million pounds of nickel and 2.9 million pounds of cobalt.
Bob Kamandanu, the president director of PT Berau Coal, a major Indonesian coal miner in East Kalimantan Province, said the company would cut production next year by 11 percent to 16 million tons of coal, from its initial target of 18 million tons. “It will be a survival year with minimum growth,” Kamandanu said. “We can’t set a higher commitment if the contractors that buy our coal don’t perform.”
Berau will also slash capital spending next year by 55 percent, down from an initial estimate of $60 million. The cutback has forced Berau to delay the construction of a new coal port in East Kalimantan, and the opening of new mines.
Indonesia’s second-largest nickel producer, Antam, is also cutting investment and will cancel its purchase of the Matabe nickel mine in South Sumatra Province.
The global economic downturn has started to affect overall investment, with the Central Statistics Agency reporting a 0.3 percent fall in the third quarter compared to the same quarter last year.