Interview: Arie Prabowo Ariotedjo
How have recent legislative changes affected Indonesia’s mining sector?
ARIE PRABOWO ARIOTEDJO: The current regulatory framework, notably Law No. 4 of 2009, focuses on strengthening Indonesia’s downstream capacities. Following the raw export ban in 2014, the government issued a relaxation for smelter-operating firms in 2017. ANTAM, for instance, annually produces 27,000 tonnes of nickel in ferronickel, a semi-finished mineral product. Nickel ore can be processed as ferronickel, which has a higher market value. Furthermore, stainless steel, a downstream nickel product, has a much higher added value than ferronickel and nickel ore.
The downstream mining sector will certainly boost GDP contribution in the long term. The strength of this sector and the quality of mining means that companies are now expected to be more export oriented. This should considerably increase the sector’s contribution to GDP over the next three to four years, as well as helping to stabilise currency volatility and promote growth.
Regulations have also been introduced for the minerals sector. The Indonesian company Amman Mineral and US-headquartered Freeport have both had to convert their contracts to special mining business licences in order to continue to export concentrate. The government has set a deadline until 2022 for them to build smelters.
In 2018 the government announced plans to ensure domestic players hold a majority share in mining companies. In November 2018 Indonesian company Inalum raised a $4bn global bond to pay for the acquisition of a 51% stake in the Grasberg mine. Inalum has therefore become the majority shareholder, although Freeport still holds the mandate to build the smelter. The government is thereby trying to increase control of resource reserves without revoking any permits. It is only possible to revoke a permit if the company in question is not performing.
What measures or incentives could boost the performance of mining companies?
ARIOTEDJO: Tax holidays and the relaxation of the raw export ban are two key incentives for Indonesian companies looking to help strengthen the downstream sector. The Ministry of Energy and Natural Resources regulation No. 11 of 2018 also proposes that the tenancy period is revised to allow extensions of 20 years through two 10-year extensions. Moreover, the electric vehicles segment offers new opportunities for mining companies. Both domestic and international companies stand to benefit from this emerging industry. The sentiment of global nickel commodity prices has been ramped up. In addition, sectoral growth is promising since the Morowali Industrial Park in Central Sulawesi was recently inaugurated by the government and will begin construction of nickel battery process plants. In this regard, mining companies, notably ANTAM, recognise the momentum and accelerate downstream projects: The East Halmahera Ferronickel Plant Project and Blast Furnace Nickel Pig Iron Project stand out in this regard. These two projects will contribute to an increase in the company’s total production capacity to 70,500 tonnes of nickel.
What challenges is the mining sector set to face in the short to medium term?
ARIOTEDJO: We are aware of the volatility of commodity prices. The challenge facing potential investors in Indonesia is a lack of infrastructure. Most of our products are exported so we have to compete with other countries. One factor which has hindered the growth of the downstream sector is that companies need to provide their own electricity and construct their own harbours and roads. As land acquisition remains a significant challenge in the sector as a whole, Indonesia has to benchmark regulatory improvements together with other countries.
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