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Indonesia’s mining companies will probably be unable to comply with the government’s ban to export unprocessed minerals beginning in 2014 because with less than two years remaining before the ban, none of the smelting plants needed to support the program have started to be constructed.
Herman Afif Kusumo, chairman of the Indonesia Mining Society (MPI), said that none of the smelting plants, which would be built either by mining companies or independent smelting firms, would be ready to operate in 2014, as building just one smelter and its supporting infrastructure would take at least four to five years to complete.
He said building a smelting plant was not easy as it required high investment and a huge power supply. As most miners were located in remote areas, it would be difficult for them to have sufficient power supplies for the smelters, he added.
“If there is no revision [to the timetable], it will be difficult for the mining companies to comply with the law,” Herman said.
According to the 2009 Mineral and Coal Law, unprocessed minerals will no longer be allowed to be exported from the start of 2014. As a consequence, miners will need to establish their own smelters or cooperate with independent smelting firms to process their mineral ore.
To ensure compliance with the law, the government introduced a recent ruling to restrict exports of unprocessed mineral ore. Under the ruling, miners are allowed to export raw materials only after receiving “clean and clear status” from the Energy and Mineral Resources Ministry, which would indicate there was no problem with their mining permits or their mining operations. In addition, they also have to pay export tax of 20 percent. The restriction will be imposed until the ban is fully implemented in 2014.
“Under these conditions, the government should revise the law and make it more flexible. For example, the deadline should be extended,” Herman said, adding that the government should allow those mining companies that had already committed to building smelting plants to export their unprocessed ore while the plants were under construction.
Industry Minister M.S. Hidayat said his office had received 153 proposals from both foreign and local investors to build smelters in the country to provide smelting facilities for hundreds of medium – and large-scale mining firms.
However, the lack of sufficient power supply in some areas remains a major problem even if the government promised to provide fiscal incentives.
Several major miners, such as Vale Indonesia, formerly known as Inco, and state-owned mining company Aneka Tambang (Antam), announced they would be building smelters to increase the processing capacity of their nickel-ore operations. Freeport Indonesia and Newmont Nusa Tenggara said they had no plans as yet to build smelters, but promised to increase the volume of copper ore to be processed in local smelters.
At present, Freeport processes about 50 percent of its copper concentrate at PT Smelting Gresik’s smelter in Gresik, East Java. Newmont said it also processed about 30 percent of its copper concentrate at the same plant.
Both companies plan to increase the volume to be processed at the domestic plant, but they have acknowledged that they still had to export unprocessed copper to meet their long-term contract obligations with foreign buyers.
Smelting plants will also need supporting infrastructure, which at the moment is virtually unavailable on any other island beyond Java.
“If we want to build a smelter in Papua, there must be electrical supply, roads, ports and a waste-dumping facility nearby,” said Rozik B. Soetjipto, president director of PT Freeport Indonesia, which currently operates the world’s largest gold mine and third-largest copper mine in Grasberg, Papua.
Benny Marbun, head of the commercial division at state-run electricity company PT PLN, said that a mining company wanting to build a smelting plant outside Java would need an accompanying 100 megawatt power plant, which would cost a minimum of US$16 million to build and two years to complete.
“Besides, a smelter needs to be powered by a specifically modified power plant. Smelting operations lead to sudden changes in electrical usage — the voltage can increase and decline quickly in a short period of time. So, modified power plants are needed to withstand such conditions,” he said.
Export restriction imposed ahead of the 2014 export ban has caused a sharp decline in the country’s nickel exports. In June, for example, nickel ore export dropped by 80 percent to 572,106 tons from a month earlier, while copper ore exports declined 89 percent to 20,000 tons in the same month.
While the government considers the regulations necessary to ensure compliance with the law, domestic and foreign investors have mostly criticized the rules, arguing that their companies had suffered massive losses since implementation of the regulations.
The Indonesian Chamber of Commerce and Industry (Kadin), for example, called the regulations a “huge mess” for the nation’s mining business, saying that local mining companies have lost Rp 1 trillion ($106 million) in revenues since the rules came into effect. (sat)