National Gold Potential Must Be Optimised for Economic Resilience

JAKARTA – After showing significant progress, the downstream policy will face future challenges in ensuring that existing facilities have sufficient supply, optimal utilisation, and a conducive business climate to remain attractive for long-term investment. This is where consistent government policy is needed. Edi Permadi, a Professional Expert in Natural Resources at the National Resilience Institute (Lemhanas), stated that restricting supply only to official permit holders, as part of strict mining management, is the right step to strengthen transparency in eradicating illegal mining. “This policy must be maintained because a healthy industry can only be built on a legal and traceable supply chain,” he said on Tuesday (4/8). He added that successful law enforcement must be followed by policies to maintain the sustainability of the formal industry. National downstream supply chain flexibility is necessary without sacrificing good governance principles. Edi cited the disruption to PT Freeport Indonesia’s smelter operations in Gresik in 2024 as evidence that the government not only can but must take steps to ensure mining activities continue and state revenue is not affected when domestic processing capacity is disrupted. “This experience shows that downstream policy must not be too rigid but needs to be built with a more adaptive and consistent approach,” said Edi, who is also a professional in the mining industry. Indonesia is one of the world’s gold producers. This potential is supported by the government’s efforts to transform the mining industry by accelerating mineral downstreaming. Currently, national gold production comes from several gold mining companies such as PT Agincourt Resources (PTAR) and PT J Resources Asia Pasifik (PSAB), as well as copper producers like PT Freeport Indonesia and PT Amman Mineral Nusa Tenggara. Along with the development of the gold bullion ecosystem and national refining capacity, the government needs to prepare policies to ensure the sustainability of the strategic investments that have been made. The main objective of the Domestic Market Obligation (DMO) policy for gold must be formulated precisely to avoid distorting trade and industrial competitiveness. “The DMO should not be intended to withhold all domestic gold production, but only to ensure the optimal supply needed by state-owned refining facilities like PT ANTAM as part of a national strategic project,” Edi explained. He stated that the DMO volume must be determined proportionally based on the needs calculated in each project’s Feasibility Study (FS), including the planned production capacity of the refinery. With this approach, the state gains certainty that the refining investment can operate optimally according to its economic design, while producers do not lose flexibility in marketing the remaining production to international markets. Once the minimum requirements based on the Feasibility Study are met, the remaining national gold production should be marketed for export. This approach allows Indonesia to reap dual benefits. On one hand, the downstream sector continues because domestic processing facilities receive adequate supply. On the other hand, the export of processed gold bullion generates foreign exchange that enters the national financial system through the Export Proceeds (DHE) mechanism, optimising economic benefits from mineral resources without hindering business activities. The increase in foreign exchange from exports holds strategic significance for the mining industry itself. The gold industry is highly capital-intensive with significant US dollar-denominated expenditures, ranging from heavy equipment purchases, spare parts, processing chemicals, mining software, engineering services, to ongoing capital expenditure and exploration. Foreign exchange generated from gold exports serves as a natural hedging source for these dollar needs, reducing the necessity for companies to source all their US dollar requirements from the domestic market. The greater the foreign exchange generated by the mining sector through exports, the less pressure there is on the demand for US dollars against the rupiah in the domestic foreign exchange market. This condition helps maintain the balance between foreign currency supply and demand, strengthens national foreign exchange reserves through the DHE policy, and contributes positively to rupiah exchange rate stability. Exchange rate stability ultimately benefits the business world through better import cost control and supports overall national economic stability. Edi revealed that within this framework, DMO and exports are not contradictory policies. Instead, they can complement each other if the DMO is placed proportionally as an instrument to ensure the sustainability of strategic national investments according to the Feasibility Study, while exports serve as an instrument to generate foreign exchange, strengthen external economic resilience, and maintain the competitiveness of Indonesia’s mining industry. Once the minimum requirements are met, the imposition of additional fiscal instruments such as export duties or taxes on remaining production must be carefully evaluated. Under these conditions, the state has essentially already benefited from downstream processing, royalties, and other revenue streams.