As per January 12, 2014, Law No. 4 year 2009 on mineral and coal would be put in effect. Meaning, from that date on, mining operators were obliged to develop downstreaming of the mineral and coal industry and they were forbidden to export raw ore. Besides miner companies were also obliged to build smelters at home in Indonesia.
But don’t be happy too soon, because behind the law ratification, the Government also issued 2 new regulations, i.e. Government’s Regulation [PP] on revisions and PP no 23/2010 on Mineral and Coal activities and Ministrial Regulation [Permen] on Energy and Mineral Resources [ESDM] No 1/2014 on Third Revision Permen ESDM no 7/2012 on Promoting Added Value of Mineral through Mineral processing and Purification.
PP number 1 year 2014 and Permen ESDM no. 1 year 2014 would save as legal ground for the implementation of obligation to process and purify minerals at home. The Ministry of Energy and Mineral Resources Jerro Wacik was not willing to disclose the required percentage of purity of processed minerals which were permitted for export.
Some circles suspected the specification of minimum purity was deliberately hidden by the Government. The objective was to anticipate strong objections from national mining activists. It’s true, this was the point that frequently provoked harsh pro and contra. However, from the various reporting it was disclosed that the permissible copper concentrate to be exported must have minimum Cu level of 15%. Any yet before the Permen No. 20 2013 was revised the permitted copper concentrate that might be exported was minimum Cu 99.9%.
With this relaxation of requirement, PT Freeport Indonesia, PT Newmont Nusa Tenggara and IUP holders escaped from the export prohibition regulation because Freeport and Newmont were so far only able to produce copper concentrate of 10% and 30% purity. But to this moment revision of the regulations was still unknown. Many circles rated that the revision which eased restrictions were against Law no 4/2009.
That was the reason why some parties planned to run legal trial to the Constitutional Court on the revision of Ministrial Regulation. Some politicians were preparing to take the same legal measures. This was because relaxation of regulation on export of raw mineral had its serious political consequence. So if there was any regulation which was against the Law, the public could claim judicial review or legal review.
Then, how did mineral miners respond to the application of the Mineral Law ? Word was out that the Association of Indonesian Mineral and Metalurgy [AMMI] responded positively to PP no. 1/2014 on the limitation of ore percentage content before exported. AMMI rated that the condition was a new phase in the process of Indonesia’s metal industry development which was more progressive.
The PP Regulation functioned to bridge supply chain of industry from upstream to metal manufacturing industry at downstream. AMMI was appreciating the Government for applying the PP No. 1/2014. So far AMMI had been seeing other countries building their metal and manufacturing industry using raw ore materials from Indonesia.
In fact Indonesia had numerous experts and practitioners who were capable of processing and purifying mineral ores before building bigger scale industry; but such was never realized because the Government was always giving permit to export mineral ores.
However AMMI asked that after PP No. 1/2014 was put in effect, the Government immediately prepared crash program and make effort to command over processing and purifying technology. The Government must minimize dependency on foreign technology and learn from China when trying to master technology.
It was noteworthy that there was a research institute which had different point of view from AMMI. The Indonesian Mining and Energy Studies [IMES] persisted not to agree with mineral ores export restriction as regulated in PP No. 1/2014. According to IMES, the impact of export prohibition of mineral ores would have its effect on many miner companies being closed.
Data of Ministry of Energy and Mineral resources [ESDM] had it that by 2013 there were 10,600, mining business permit [IUP] issued. Closing of these minies resulted in workers’ mass dismissals. The further effect was that small business as supporting industry to mining like small coffee shops, house rental, land and transportation, people’s cooperative societies and supplier of food would be losing business. And the communities who were mostly living in in remote areas would feel the chain effect.
So IMES rated that the PP No. 1/2014 means fortune for foreign mining operators but misfortune to domestic mining companies. The regulation was a by-product of the Minerba Law which prohibited export of mineral ores as per January 1, 2014 last. According to IMES, contract holders like Freeport, Newmont, and Valle-INCO could export products based on some policies.
This unfair situation was because required degree of ore purity was not 100% tolerated at home and would soon be further regulated in ESDM Ministrial Reagulation or revised Permen No. 20/2013. So far the public had been unable to distinguish 2 categories of mining companies : KK and IUP. KK were mostly foreign companies which since the era of the New Order were operating in 1960-1970’s while IUP had only been around in the past 3 – 7 years. They were national entrepreneurs. IUP was the “UKM” of mining industry.
IMS rated that the unfair situation was due to discrepancy in historical track record between KK and IUP companies. KK had long experience while IUP was only born yesterday. So supposedly export prohibition should be addressed to KK although they were able to a higher percentage. Supposedly IUP who had been doing business for a few years be set free to export ores.
IMES believed that the policy to build smelters at home needed support of infra structure. The problem was that the regulation to prohibit export of ore materials was not supported by building of infra structure like electricity, road and harbor which was reflected in APBN State Budget in the past 5 years.
To build one smelter unit, technically needed at least 2-3 years, hard cash of USD 2 billion, and 15 million mega watt of power support; not to mention complicated permit application process and problems in land clearing. Even if this year 60 – 600 smelters were to be built amidst people’s settlements, open conflict was bound to happen between companies and communities, such as land conflict and space planning as miners and the people fight over land. And there would be environmental pollution caused by smelters wastage.
In fact the Government had allowed enough opportunities to miners to build smelters. Since making of the Minerba Law in 2009, there had been a span of 5 years in which to build smelters, but most miners did not make the best of the opportunities. They prefer to drain natural resources to the maximum for export without considering the long term effect.
Business News - January 17, 2014