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Jakarta Post

Slow progress in smelters puts planned export ban into question

  • Raras Cahyafitri

    The Jakarta Post

Jakarta   /   Mon, February 15, 2016   /  05:37 pm

The government may yet again shelve its plan to impose a complete ban on raw material exports after acknowledging slow progress in the nation'€™s smelter development.

A delay in the 2017 deadline would constitute a three-year delay if the government follows up on its decision to allow mining firms more time to build smelters, either individually or in cooperation with other parties.

Only six new smelters were kickstarted last year, and these smelters were all small in size.

According to data from the mineral and coal office, three nickel smelters, one bauxite smelter and three lead-zinc smelters are scheduled to start operations this year. No significant progress has been reported in the much awaited Freeport Indonesia copper smelter.

Another delay would undermine the consistency of the Indonesian government'€™s policy to inhibit raw material exports in order to add more value to the country'€™s mineral processing industries.

'€œWe are now waiting for the planned amendment to the mining law,'€ said Ahmad Redi, an expert on laws related to resources from Tarumanegara University.

Redi doubted the government would penalize firms for failing to hold up their agreement to build smelters.

'€œWe are accelerating the process to make the new law. There are several things we need to fix, such as why the contribution from the sector is very low.'€

The Energy and Mineral Resources Ministry and the House of Representatives Commission VII overseeing energy are both working on a new law to replace the 2009 Mining Law, which is thought to need adjustment as a number of articles are now considered obsolete and can no longer be implemented.

Commission VII deputy head Fadel Muhammad said that the new law would be completed by the middle of the year.

'€œWe are accelerating the process to make the new law. There are several things we need to fix, such as why the contribution from the sector so very low,'€ Fadel said.

The 2009 Mining Law mandates that the government implement value-added policies in the mining sector to help the country climb to a higher position in the production chain. Under the law, mining firms are required to process and refine minerals into end products before being allowed to sell them overseas. A five-year period ending in 2014 was given to the companies to prepare the facilities to process minerals domestically.

As a consequence of the regulation, the government should have theoretically banned the export of raw minerals starting in early 2014. However, many companies were reluctant to comply with the law, arguing that smelter development was not economically feasible. In response, many mining companies asked for a delay in the regulation. The government bowed down to the request and allowed firms to continue exporting semi-finished products. However, they limited this arrangement until 2017, and demanded that mining firms continue to build smelters. Under the current regulation, mining firms working on smelter projects have to deposit 5 percent of their total investment in local banks as collateral to ensure that they will continue the development. The surety bonds are a prerequisite for the firms to obtain permits to export semi-finished mineral products.

On the backdrop of a prolonged slump in global commodity prices, mining firms around the world have struggled to maintain profits. Last week, the Energy and Mineral Resources Ministry said it was revising the regulation on smelter development and its connection with export permits as part of the government'€™s efforts to support mining firms mired in financial woes.

Marwan Batubara of the Indonesian Resources Studies (IRESS) said the government should be consistent in implementing the prevailing law.

'€œThe 2009 Law is still applicable. The law must be enforced,'€ Marwan said.

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