A recent ministerial regulation on the roles of mining service companies in mining projects may reduce the industry’s revenue by up to US$750 million a year, an industry association said over the weekend.
Previously, mining companies could outsource all kind of jobs in their working areas to the service companies. But, the Energy and Mineral Resources Minister’s regulation No. 28/2009, which took effect on Sept. 30, stipulates that the mining companies must now conduct mining, processing, and purifying activities directly themselves.
The regulation further stipulates that the mining companies can only outsource surface stripping and transportation jobs to the mining services companies.
Susanto Joseph, executive director of Indonesian Mining Services Association (Aspindo) said that these limitations would reduce the job volume of service companies’ jobs and, as a consequence, cut their revenue.
“Normally, in a bid to reduce the risks, the mine owners outsource between 70 to 80 percent of the mining activities to the mining service companies.
“With the enactment of the regulation, this portion will be reduced by 15 percent or equal to between $500 million and $750 million of revenue,” said Susanto, adding that the regulation implementation might eventually also cause lay-offs.
Nur Hardono, head of the sub-directorate for minerals, coal, and geothermal supporting businesses at the Ministry, said the regulation did not entirely close opportunities for the service companies.
The regulation was in fact issued to provide the legal basis for mining service activities following the implementation of the new mining law, he added.
With the new mining law, the ministerial regulation also brings several new perspectives. For example, the regulation requires mining firms to prioritize hiring domestic service companies. They can only outsource jobs to foreign companies when no local companies are capable of doing certain jobs.
The regulation says the ministry will approve the mining companies to use their subsidiaries or affiliates only after they have announced tenders in the mass media, but when no other service companies are interested or capable of doing the jobs on a competitive basis, technically and financially.
The new regulation applies both to new mining license holders, who obtained their licenses after the new mining law has been introduced, and to existing contract holders. However, the latter are given a three year transition period to bring the regulations into implementation.
Indonesia, the world’s largest archipelago, is rich in various mining resources including gold, copper, tin, coal, bauxite and nickel. However, investment in this sector has never fully recovered from the regional financial crisis of the late 1990s.
Last year, investment reached about $1.35 billion, 2.5 percent more than the $1.25 billion booked one year earlier.
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