The government last week allowed miners to continue exporting several semi-processed mineral ores through Government Regulation No. 1/2017 on the management of mineral and coal businesses.

However, the export permit will not be issued unless miners display a commitment to construct smelters to help develop the downstream industry.

“We have been preparing for this. We want to build the smelter near the Batu Hijau mine [in Sumbawa, West Nusa Tenggara] and expect the ground-breaking ceremony to be held by the end of 2017, or at the beginning of 2018 at the latest,” Medco Energi president commissioner Muhammad Lutfi told The Jakarta Post recently.

“Hopefully we can start the smelter’s operations in 2021,” said the former trade minister.

Medco became responsible for the smelter construction after it acquired in November a 50 percent stake in PT Amman Mineral Investama, which controls an 82.2 percent shares in copper and gold company PT Newmont Nusa Tenggara, a local unit of US mining giant Newmont Corp.

Newmont Nusa Tenggara, which has officially changed its name to Amman Mineral Nusa Tenggara, currently operates the Batu Hijau mine, the country’s second-largest copper and gold mine after the one in Timika, Papua, operated by PT Freeport Indonesia.

The Batu Hijau mine produced 240 million pounds of copper and 300,000 ounces of gold in 2015.

According to the latest regulation, if Medco Energi wants to get the export permit for its copper concentrate, the company will need to show a commitment to building a new smelter under the government’s strict monitoring over the development progress every six months.

Lutfi said the investment for the new smelter development would not be more than US$500 million.

“We have long planned to build the smelter, even before the issuance of the [export] relaxation policy as we expect a surge in the domestic demand for copper in the near future,” said Lutfi.

The government has estimated that copper consumption would reach at least 5 kilograms per capita in 2025, or 1.68 million tons per year from the smelting of 5.15 million tons of copper concentrate.

Indonesia only produced around 241,000 tons of copper last year.

Last week’s regulation was the fourth revision to Government Regulation No. 23/2010 on the management of mineral and coal businesses, allowing miners to continue exporting copper concentrates, certain amounts of low-grade nickel ore and washed bauxite in return for their commitment to build a new smelter and to supply domestic smelters with at least 30 percent of their input capacity.

Moreover, miners are also obliged to convert their permit status from a contract of work (CoW) to a special mining license (IUPK) and divest 51 percent of shares of foreign-owned miners to local entities.

“We have no problem with the divestment policy as we have done it in accordance with the law. However, we are still studying the requirement to convert our contract into IUPK,” Lutfi said.

ReforMiner Institute executive director Komaidi Notonegoro said the government had no other options other than to continue with the export relaxation as it had failed to ensure progress in the construction of smelters.

“Giant miners like Freeport Indonesia and Amman Mineral Nusa Tenggara will make a fortune out of the government’s inconsistent policy,” Komaidi said.

Data from the Finance Ministry show that Freeport Indonesia and Amman Mineral Nusa Tenggara paid Rp 1.23 trillion ($92.1 million) and Rp 1.25 trillion, respectively, in export duty alone in 2016.

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