Mita Valina Liem Miners Must Smelt Ore in Indonesia Under New Law
Mining firms operating in Indonesia will no longer be able to extract and directly export unprocessed ore, but instead will have to refine it locally before shipping it abroad, according to a provision of the mining law passed by the House of Representatives, or DPR, on Tuesday.
The new rules are intended to encourage the development of Indonesia’s smelting industry in order to increase the value of mineral exports. If they are strictly implemented, miners will have to spend millions of dollars on building smelters to process ores or divert their production to existing local smelters.
Ahead of the passage of the legislation, however, global commodities prices slumped, and the ongoing credit crunch means financing is becoming hard to come by.
Industry heads argue that the smelting requirements mandated by the new law are uneconomic and basically unworkable.
Irwandy Arif, chairman of the Indonesian Mining Professionals Association, or Perhapi, said the legislation already needed to be reviewed, despite the fact that it had just been enacted. Miners are already reluctant to invest in Indonesia because of the country’s myriad problems, he said, pointing to crumbling infrastructure, corruption and an excessively complex and opaque regulatory regime.
“Investors are being asked to invest a lot more money on building smelters, but the profit outlook is unclear here because of the many unanticipated problems that tend to arise, all of which serve to increase costs,” Irwandy said on Tuesday.
The association met last week to discuss the legislation and agreed that mining firms would need a minimum of eight years to construct smelters, not five years as stipulated in the law, he said.
“It takes longer than five years to construct an integrated smelter, not to mention an enormous amount of money,” said Juangga Mangasi, the secretary general of Perhapi and a director of the Nusantara Smelting Corp. in East Kalimantan. The corporation had planned to construct a smelter with a capacity of 200,000 tons of copper cathode a year in the second quarter of 2009. However, the credit crunch and plummeting metal prices have pushed the plan back to 2010.
At the moment, Indonesia has only one copper and gold smelting facility, which is located in Gresik in East Java Province and is 60 percent owned by Mitsubishi Materials Corp. and 25 percent by the Indonesian unit of US-based Freeport McMoRan Copper and Gold Inc. Japanese investors hold the remaining shares in the venture.
Some local businesses are already taking steps to comply with the new legislation. Reuters reported in November that locally-owned PT Indosmelt had plans to build a copper smelter in Maros, South Sulawesi Province, in 2010 with an annual production capacity of 100,000 tons of copper cathode.
However, as many mining firms operating in Indonesia have long-term contracts with overseas buyers, investors say they could struggle to come up with enough raw materials to feed their new smelters - even if they could secure the project funding needed in the first place.
“A smelter needs a certain minimum capacity and supply of raw materials so as to cover its costs,” said Nusantara’s Mangasi, “However, most miners already have long-term contracts [with overseas smelters] and we can’t just expect them to suddenly break these and turn to us.”
Muhammad Idris Lutfi, a Prosperous Justice Party, or PKS, legislator and member of the House of Representatives’ committee that drafted the mining law, said all investors’ fears and concerns would be addressed by the law’s ancillary regulations, which must be issued by the government within the space of one year. Muhammad said that the new mining law was deliberately intended to be general in nature, while more detailed aspects would be addressed by the ancillary regulations.
The new rules are intended to encourage the development of Indonesia’s smelting industry in order to increase the value of mineral exports. If they are strictly implemented, miners will have to spend millions of dollars on building smelters to process ores or divert their production to existing local smelters.
Ahead of the passage of the legislation, however, global commodities prices slumped, and the ongoing credit crunch means financing is becoming hard to come by.
Industry heads argue that the smelting requirements mandated by the new law are uneconomic and basically unworkable.
Irwandy Arif, chairman of the Indonesian Mining Professionals Association, or Perhapi, said the legislation already needed to be reviewed, despite the fact that it had just been enacted. Miners are already reluctant to invest in Indonesia because of the country’s myriad problems, he said, pointing to crumbling infrastructure, corruption and an excessively complex and opaque regulatory regime.
“Investors are being asked to invest a lot more money on building smelters, but the profit outlook is unclear here because of the many unanticipated problems that tend to arise, all of which serve to increase costs,” Irwandy said on Tuesday.
The association met last week to discuss the legislation and agreed that mining firms would need a minimum of eight years to construct smelters, not five years as stipulated in the law, he said.
“It takes longer than five years to construct an integrated smelter, not to mention an enormous amount of money,” said Juangga Mangasi, the secretary general of Perhapi and a director of the Nusantara Smelting Corp. in East Kalimantan. The corporation had planned to construct a smelter with a capacity of 200,000 tons of copper cathode a year in the second quarter of 2009. However, the credit crunch and plummeting metal prices have pushed the plan back to 2010.
At the moment, Indonesia has only one copper and gold smelting facility, which is located in Gresik in East Java Province and is 60 percent owned by Mitsubishi Materials Corp. and 25 percent by the Indonesian unit of US-based Freeport McMoRan Copper and Gold Inc. Japanese investors hold the remaining shares in the venture.
Some local businesses are already taking steps to comply with the new legislation. Reuters reported in November that locally-owned PT Indosmelt had plans to build a copper smelter in Maros, South Sulawesi Province, in 2010 with an annual production capacity of 100,000 tons of copper cathode.
However, as many mining firms operating in Indonesia have long-term contracts with overseas buyers, investors say they could struggle to come up with enough raw materials to feed their new smelters - even if they could secure the project funding needed in the first place.
“A smelter needs a certain minimum capacity and supply of raw materials so as to cover its costs,” said Nusantara’s Mangasi, “However, most miners already have long-term contracts [with overseas smelters] and we can’t just expect them to suddenly break these and turn to us.”
Muhammad Idris Lutfi, a Prosperous Justice Party, or PKS, legislator and member of the House of Representatives’ committee that drafted the mining law, said all investors’ fears and concerns would be addressed by the law’s ancillary regulations, which must be issued by the government within the space of one year. Muhammad said that the new mining law was deliberately intended to be general in nature, while more detailed aspects would be addressed by the ancillary regulations.