Not only is added value imposed on tax (in Indonesia: PPN, in western countries: VAT), it is a must for the mining industry in the country nowadays.
For years, added value in mining (VAM) and added value for mining products have been implemented in Indonesia, such as converting crude oil into oil fuels, lube oils, wax, asphalt, petrochemicals and other products for different purposes. Coal has been fabricated into coal briquettes for kitchen stoves, for use in household cooking activities.
The purpose is to heighten the status: Uses, qualities, prices, technical and industrial innovations. In other words, for the sake of the economic development of the country.
The government has recently been refining mining products with the intention of not being dependent on foreign products as well as thrift of foreign exchange. The domestic refining program has a number of big multiplier effects for the country such as employment opportunities, industrial innovations, the transfer of technology, diversity of management systems towards effectiveness and efficiency and the like.
If employment opportunities are widely opened, say in local areas, then community development is raised and the atmosphere becomes peaceful. The effect of industrial innovation is certainly a provision of the diversification of products and new products and that means encouraging new inventors to create new and more useful products.
The transfer of science and technology is another purpose for community development, which refers to more practical and indirect education for people. Managing a mining business is quite different from other businesses since it involves many intricate jobs as well as exercises. Each sector needs its own management style.
In the coal and mineral business, the government has recently issued Ministerial Regulation No. 7/2012, signed on Feb. 6, 2012, which relates to mining operators processing and refining raw materials into ready-to-use products, not to export as raw materials. The regulation is based on Ministerial Regulation No. 23/2010 on the implementation of coal and mineral mining operations in Indonesia.
The regulations prohibit certain mineral raw materials, both metal (copper, iron ores, manganese, gold, lead and zinc, iron sands, silver, bauxite and nickel) and non-metal (calcite, kaolin, diamond, and quarts sand), for export. The license holders of mining minerals then have to process and refine the raw materials in smelters or in refinery units in the country.
All these regulations are based on Presidential Regulation No. 4/2009 on Coal and Mineral Mining, of which license holders (IUP and IUPK) are supposed to add value to the raw materials. In addition to that, the Ministerial Regulation No. 34/2009 emphasizes domestic market obligation (DMO) to support domestic demand.
There have been a number of smelters operating in this country, with administrative sanctions in the form of the temporary banning of mining activities, including operations, processing, refining, transporting and marketing, in case of violations of the regulations.
The implications of the new regulations have made mining business operators seek or cooperate with refining operators to implement the regulations. The government may as well invite other investors, using means known as “road shows” (by the government), and “beauty contests” (by companies), both extensively and intensively to embark on successful business ventures. But these efforts are quite costly and time consuming.
A mining association in Jakarta has said that the government should give incentives to accelerate the development of new smelters and refineries to attract new investors. Incentives may include tax holidays, facilities or general infrastructures such as land acquisition, road development, simple licensing procedures, and similar things to back up easy business.
As reported, recent Presidential Regulation No. 3/2012, issued on Jan. 5, 2012, has assigned Kalimantan Island as the center of mineral and coal mining due to the island’s huge potential of minerals and coal. A number of minerals are available in Kalimantan such as gold, bauxite, kaolin, nickel, zircon, fire clay, granite, quarts sand, phosphate, manganese and coal.
The presidential regulation is used as the basis for regional or local governments to offer work areas to the public through auction, while the Energy and Mineral Resources Ministry is the sole decision maker in the whole work area. To develop the center, the ministry and local authorities plan to build a “national city”, similar to that of Toyota City in Nagoya Japan, to accommodate smelters and refining units and other downstream business for the said minerals.
Recent reports reveal the decreasing demand of coal in Europe, particularly in Germany and Spain, of around 45 percent, due to the successful development of solar power (in Spain) and wind energy (in Germany and the Netherlands) to cope with high electricity generation, other than using coal. International prices have also been going down bit by bit due to the low demand of coal and abundant stock in Europe.
To anticipate declining international requests for coal from Indonesia, product diversification and the development of coal by domestic business operators would probably be the best answer. Research and development activities should then be intensively and extensively activated and supported by the government.
Other factors that may encourage investment in mining in this country include, among others, the government’s political attitude and enthusiasm, legal security and enforcement, reciprocal cooperation and facilitation. Hence, the key phrase for a successful business is “business atmosphere”.
The writer, a former head of division of bilateral cooperation at the energy and mineral resources ministry until 2000, is a lecturer at the Faculty of Economics, Atma Jaya Catholics University, Jakarta.
