THERE are some encouraging signs for mining after an uncertain 2012 with commodity prices recovering, Chinese growth picking up and economies in the US and Europe less troubled than previously. If South East Asia’s largest economy, Indonesia, is to gain full benefits of a mining recovery, the remainder of 2013 is a vital time as the country prepares for several imminent mining legislative changes.
The archipelago is ideally placed to be a major beneficiary of mining industry recovery owing to its abundance of minerals and coal, and its proximity to major growth markets, but whether it does is almost entirely up to the government which is implementing a number of major ‘initiatives’ forming part of the 2009 Mining Act. Uncertainty about these changes has already seen foreign investment falter with a number of new projects failing to eventuate and others being delayed indefinitely owing to lack of funds and problems with licence approvals.
The changes of most concern are the regulation banning the export of unprocessed ores by 2014 as part of the government’s policy of strengthening the country’s upstream mining industry and the restructuring of mining licences (IUPs) through ‘clean and clear’ verification.
While the government’s intentions in banning unprocessed ore exports are understood and arguably beneficial for the emerging nation, the time limits imposed appear unreasonable considering the length of time needed to implement secondary processing, not to mention the costs. With the stopwatch running down it appears highly unlikely that the majority of companies mining in Indonesia will be able to satisfy the ‘value-adding’ legislation which means there is a big cloud hanging over the country’s mining industry.
Many experts are calling on the government to provide companies with incentives to encourage them to add value to the mineral ores they sell in overseas markets. The Indonesian Mining Experts Association’s new chairman Achmad Ardianto says his association fully supports the mineral processing regulation, however, mining companies might need government support to be able to export processed ores as scheduled. “We understand that the government wants to add value to the downstream sector. At the same time, companies are calling for the repeal of the decree. The government has done the right thing but they should only execute the plan when companies are ready.
“The regulation requires companies to build smelters to continue shipping ores abroad and it’s going to take time and money to do that. The scheme will hurt companies if the government doesn’t help them,” says Achmad Ardianto, who is also human resources director at the mining company PT Aneka Tambang.
Another association spokesman, Budi Santoso, says the regulation does not properly address the current needs and realities of existing businesses. “The government hasn’t calculated the plan precisely. A company can only build a smelter within eight to nine years after it gets its mining permit, the time of which is allocated for exploring the land, requesting another permit for the smelter and later construct it. Each of these phases needs two to three years to accomplish and the companies might not be ready to implement the regulation by 2014. The government needs to either fund the building of smelters or ease the permit-issuing process, because some companies say that they need around 90 permits to build one smelter.”
The issue of mining licences (IUPs) is also causing concern in mining circles in Indonesia and abroad with the Ministry of Energy and Mineral Resources admitting that the restructuring of IUPs through ‘clean and clear’ verification has been running more slowly than it should. Director general for coal and mineral affairs Thamrin Sihite says his office has been a bit slow in doing the IUP reconciliation because the office is more careful in verifying before issuing a clear and clean. “We involve many parties such as the police, prosecutors, BIN (the state intelligence agency), and the national land agency. So it has been a slow process.” The department also says it has been slowed by a number of entrepreneurs who have appealed to the Supreme Court against the decision. The verification is intended to settle overlapping licences. The process has gathered speed in the early part of 2013 but there is still some way to go to pave the way for a stronger and more investor friendly mining industry.