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Morowali investors jittery over policy uncertainties
PT Indonesia Morowali Industrial Park (IMIP) currently has two top priorities
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PT Indonesia Morowali Industrial Park (IMIP) currently has two top priorities. First, establishing the world’s biggest integrated nickel-content stainless steel production compound by 2019, and second keeping the government from making life even more difficult.
IMIP’s story can be traced back to 2007, when Bintangdelapan Group started its mining operations in a 47,000-hectare concession in Morowali, Central Sulawesi, through subsidiary PT Bintangdelapan Investama (BDI).
Shanghai Decent Investment Group, a subsidiary of Chinese giant steelmaker Tsingshan Group, teamed up with Bintangdelapan in 2009 as part of its global expansion.
The two were able to produce and export around 3.5 million tons of nickel ore to China in 2013, before Indonesia introduced its raw-mineral exports ban at the beginning of 2014 in an effort to encourage the country’s processing sector and create added value.
The ban turned out to be the starting point of a massive influx of Chinese investment, as Tsingshan and Bintangdelapan signed a cooperation agreement in October 2013 to develop a new industrial estate in Morowali, designed to supply nickel-based products to China in the long run.
Hence, IMIP was established to operate the industrial estate. Shanghai Decent controls a 74.69 percent stake in IMIP, while the remainder is owned by BDI.
However, after IMIP realized US$2.4 billion of its committed $6 billion investment in Morowali, the government suddenly relaxed its mineral-exports ban in early 2017, allowing miners to export low-grade nickel ore with content below 1.7 percent, under certain circumstances.
“The government can decide to do whatever it feels is right to do. But remember, we have poured in a big investment here and that should be protected and respected. Consistency, especially in terms of regulations, is a very sensitive matter for investors,” IMIP chief executive officer Alexander Barus told The Jakarta Post recently.
Furthermore, Barus said the government should start thinking about balancing the supply and demand of nickel ore in the country, especially considering the development of many new nickel smelters in recent years. Otherwise, IMIP might be forced to import nickel ore in the next two decades, he added.
In the period of 2012 to 2016, Indonesia saw the development of 32 new processing facilities with a total investment of $18 billion, two-thirds of which were nickel smelters.
As of last year, Indonesia’s measured nickel resources stood at 1.43 billion tons, while its proven nickel reserves amounted to 238.64 million tons.
When the Morowali industrial complex is fully developed, IMIP has estimated it will process around 14 to 19 million tons of nickel ore per year in four smelters operated by its four affiliates: PT Sulawesi Mining Investment (SMI), PT Guang Ching Nickel and Stainless Steel Industry (GCNS), PT Indonesia Tsingshan Stainless Steel (ITSS) and PT Tsingshan Steel Indonesia (TSI).
Tsingshan controls the majority stake in all four firms through its various subsidiaries and affiliates, including Shanghai Decent, Guangdong J-Eray Technology Group and Ruipu Technology Group.
“We can only produce around 4 to 5 million tons of nickel ore per year from our mine [in Morowali]. That means we will have to buy more than 10 million tons of nickel ore per year from outside the region,” Barus said.
As of October, IMIP had completed the development of three of the four nickel smelters with a capacity of producing 1.2 million tons of nickel pig iron (NPI) per year from the total expected capacity of 2 million tons.
SMI, GCNS and ITSS are also all expected to have a stainless-steel slab factory with a combined capacity of 3 million tons, all of which will be used to manufacture 2.5 million tons of hot rolled coil (HRC) and 500,000 tons of cold rolled coil (CRC) per year.
“We will eventually export all of our HRC because, at present, the country has no facility to process such material,” said Barus, while adding that the CRC might also be exported if there was no demand from the domestic market.
At present, IMIP has exported some of its NPI, stainless-steel slab and HRC through its own port inside the Morowali industrial park. However, no details are available yet on the exact figure of those exported products.
IMIP senior vice president for external relations Slamet Viktor Panggabean said the company had routinely reported its exports to the Poso Customs and Excise Office in Central Sulawesi, which would later send its officials to Morowali to check the exported goods and their documents.
“We have no choice. It takes us three days to go back and forth to Poso, while one day’s delay in shipping would cost us $20,000 in demurrage,” Slamet said.
Moreover, IMIP also plans to develop a carbon steel factory worth $960 million, with an annual capacity of 3.5 million tons.
PT Dexin Steel Indonesia, a joint venture between IMIP, Shanghai Decent and Delong Steel Singapore Projects, is expected to start constructing the factory in early 2018 and complete it in mid-2019.
The Office of the Coordinating Maritime Minister has formed an inter-ministerial team to expedite the development of the Morowali industrial complex, which is expected to be a special economic zone (KEK) in the near future.
“If the plan is realized, we might be able to get special tax treatment, while the industrial estate will be declared a vital object. [...] We will also get all the help we need to develop various public facilities here,” Slamet said.
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Secluded Morowali
Getting to the IMIP site in Morowali from Jakarta is a pain-staking endeavor. There are three ways to get there. The first way is to fly from Jakarta to South Sulawesi’s capital, Makassar, and then take an hour’s flight directly to Morowali, which is scheduled to run twice a week.
The second route is to fly from Jakarta to Central Sulawesi’s capital Palu. From Palu, the site can only be accessed by land and takes around 15 hours by car.
The third route is to fly from Jakarta to Southeast Sulawesi’s capital Kendari. From there, the site can be accessed by a boat that takes four-hours, or by car that takes seven hours.
