Monday, 6 January 2014


Amidst downturning global demand for minery products, many exporters of minery products objected the Government’s regulation to prohibit raw mining materials. The reason was that exporters were extremely disadvantaged by the application of the regulation.

Noteworthy was the statement of Finance Minister Chatib Basri that export of processed mineral products would increase by 2015 if law no 4. Year 2009 on Mineral and Coal Mining were consistently implemented. By 2015, export of processed materials would increase significantly. Today the figure was around USD 4.9 billion but by 2015 it might increase to USD 9 billion.

Finance Chatib stated that application of the Regulation would reduce export of raw mineral materials before purification and processing at smelters was exercised. Admittedly export of unprocessed raw materials would lessen in 2014 which would have its effect on national export.

In the past decade export of minery products, mostly raw materials even in the form of concentrate jumped up nearly 900% from USD 3.57 billion to become USD 34.65 billion. It was hard to believe how the Government allowed raw mineral products of low added value to be massively exported. It was hardly understandable that raw mining materials was relied on as national non oil-gas export commodity.

It was not too surprising that national economy today was gnawed off by deficit in current transaction on account of the wide deficit in trading due to high import of finished goods beside raw materials, spareparts, capital goods, crude oil and oil fuel.

Trade deficit need not happen if Indonesia had sound and comprehenstive industry including basic industry, capital goods industry, upstream industry and downstream industry. Now it was only too obvious that the Government must reform the national industry structure which was strong; it could only be realized if the Government were resolute and not be hesitant in executing downstreaming of industry which was based on natural resources like mineral mining.

Furthermore the Finance Minister remarked that export of Mineral and Coal Raw Materials could affect deficit and trade balance next year, but the deficit was predictably not too wide, because the Government had reduce import of oil and gas in line with the bio-diesel policy. This bio-fuel would be fully effective by 2014. In 2013 the amount saved by biodiesel application was around USD 200 million, but in 2014 it was expected there would be saving of around USD 4 billion from the reduction of oil-gas importing.

Besides the policy to increase Added Value Tax as written in Article 22 on imported goods which would be announced by the government was expected to save forex from import amounting to USD 3 billion and as a whole was expected to downsize Deficit in Current Transaction. So there would be saving of around USD 7 billion and the impact on deficit in trading could be positive.

Also noteworthy was that the Government’s prohibition to export raw mining materials could cause deficit in trade balance to swell to USD 10 billion. From unprocessed raw materials around USD 5 billion could be saved. However the deficit would be reduced in 2015 and by 2016 it was expected that trading in the minery sector would begi to post surplus as many companies would be setting up smelter plants.

Naturally by 2015 as many smelters would have been built, deficit be around USD 3 billion only from mineral and coal alone. Furthermore by 2016 there would be surplus as there would be more smelters in opertation. This should be motivation for holders of mining concession to build smelters or find business partners to build smelters. The obligation to build smelters was the center of attention for miners. God permitting, by January 12, 2014 the Government obliged mining operators at home to process their minerals first before exporting.

The Government and Parliament agreed that the regulation must be implemented unconditionally, whatever the consequences, including multi-national miners bring the case to arbitration and the possibility of failing state’s income. The agreement signaled many positive effect. At least the Government and House had the same strong political will and belief that Law no 4 year 2009 on Mineral and Coal must be implemented. It also showed that the Government and House shared the same opinion that downstreaming of nature-based industries was indisputably necessary.

It was about time enhance prohibition of exporting raw mineral and coal. As known, they were exported as raw materials which brought low added value and minimum profit to exporters. The one who enjoyed added value were foreign buyers after they processed the raw materials.

Export of raw mining materials created no multiplier effect on national economy. By making it mandatory for miners to process their mining materials before exporting them, probably many domestic coalmine companies would collapse. But the pain would be only temporary. In the mid term and long term, great fortune would be waiting for them.

Supposedly, there was nothing to worry about for the Government would be accused of betraying the constitution unless the Minerba Law was executed. Predictably the Government would have to face reactions from many parties. All the elements of the nation should stick together hand in hand to support the Government and House’s commitment.

Business News - December 13, 2013

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