Interview: Alwinsyah Lubis

What sort of infrastructure will be required for mining firms to accommodate the scaling up of the minerals extraction sector?

ALWINSYAH LUBIS: Currently, mining facilities are often established in remote areas, so it is not easy to guarantee their economic viability. In the future, this could be achieved if companies consolidated and cooperated in operating mines and smelting facilities. For instance, smaller mines could team up with larger ones at the domestic level to build facilities.

The new scenario would certainly push our company as well as other players to execute significant investments to build smelting facilities and adjacent infrastructure. This infrastructure would include roads, electricity systems and other means needed to operate smelter facilities.

At this point it is clear that the government expects investors themselves to support the creation of new infrastructure. Because of this, companies must work out what investments they will need to make and establish the additional capital expenditure needed when making their business plan.

These companies can then make a rational economic calculation as to whether or not the investments are worth making. This will also result in the creation of opportunities for foreign companies to engage in the sector. For example, we are doing so by partnering with a foreign company to build our smelter plant in West Kalimantan.

In what way will the nickel industry be affected by the ban outlined in the Ministry of Energy and Mineral Resources Regulation No. 7 of 2012?

LUBIS: The government is now very confident that the ban on exporting ores is going to be implemented in 2014, and it appears that this deadline will not be delayed any further.

This regulation follows the path started by Law No. 4 of 2009 on Mineral and Coal Mining, which already requires companies to process their mineral output within Indonesia. The legislation was accompanied by a number of incentives that enabled downstream companies to stay viable.

However, this latest regulation came as a shock to mining sector players in both the nickel segment and other mineral sectors, because companies began preparing for its implementation too late, perhaps in anticipation of delays that were not forthcoming. The new regulations have even opened an international debate as to whether there is nascent resource nationalism emerging in Indonesia.

I, for one, do not believe that the government’s policies – which are aimed at controlling mining exports – amount to resource nationalism. Rather, the move is necessary in order for the country to obtain a multiplier effect from the resources. Greater economic and social benefits will be derived from the added value of downstream processing for Indonesia’s reserves of natural resources.

It follows that the industry will have to develop its downstream capacities, so as to have more impact on economic growth. Indeed, the long-term ramifications of this regulation will very much depend on the domestic players in the sector and their capacity to collaborate and partner to create processing facilities and infrastructure.

In what ways do you anticipate that this regulation will affect the price of nickel?

LUBIS: We expect the price of nickel to increase, although not only as a result of the new regulation. It is not clear by how much, as this also depends on developments in global economic conditions.

Another factor affecting the price of nickel is the fact that steel producers have decreased their capacity, which has an impact on nickel producers. This is a demand-driven industry that continues to be dependent on the stainless steel sector. Once the amount of demand picks up again, the prospects for the nickel industry will likely start to improve as well.