The Indonesian Mining Association (IMA) wants incentives for mining firms that under a new mining bill will be required to set up integrated, downstream-to-upstream business operations.
Under the mining bill, whose deliberation at the House of Representatives is nearing completion, new mining companies must create added value to their mining products by setting up a complete operation, from the upstream to downstream sector.
For the initiative to get the full backing of the business community, incentives should be given to these firms, IMA executive director Priyo Pribadi said.
"By giving incentives, it is expected the firms will be tempted to build smelters and refineries," Priyo said.
The government hopes that establishing complete upstream-to-downstream processing plants will eventually strengthen the country's mining operations.
Under the bill, the new miners will be banned from exporting their mineral concentrates.
Many firms have objected to this stipulation, saying it will hamper business because the local market does not have the same capacity as the global market for processed mining output.
They also feel it will burden them as business entities, since they will need to spend more to build processing plants.
The government argues the requirement is urgently needed so the mining sector can provide more of a multiplier effect on the economy as a whole.
"The government should notice that it is not easy to build smelters. Not only does it require a lot of investment, it also means that miners will need to deal more with the bureaucracy when it comes to processing permits," Priyo said.
He said the IMA was pessimistic about the bill, saying it was unlikely the new legislation would create the foundation necessary to improve the investment climate in the mining sector.
"We will see that there is still a lot of uncertainty, especially in determining the authority of the central government and local governments."
The IMA also has warned the government against interfering with existing Contracts of Work (CoW), to show that it respects the sanctity of a contract.
Under the bill, a transition period will be applied to CoW holders before they are gradually moved over to the new permit system introduced in the bill.
The mining bill, which has been in discussions for more than a year, is expected to be enacted by the end of the year.
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