Wednesday, 15 January 2014


The polemics over implementation of Law no 4 /2009 on Mineral and Coal Mining kept rolling. Some were pro and some were against implementation of the Law. As known implementation of the Minerba Law had its consequences on the life of mining operator companies.

An example was PT Freeport Indonesia, which operated the biggest gold and copper mine in the world, which would probably run mass dismissals of workers as related to implementation of Law no 4/2009 in Mineral and Coal Mining.

As told, Chairman of the Branch Management of the Indonesian Labor Union [SPSI]; Chemical Energy and Mining [SP KEP] of the Mimika Regency Virgo Solossa said that the Minerba Law made it mandatory to purify 99% of copper, gold and other by minerals at home.

They said that today 30 to 40% of metal concentrate of PT Freeport Indonesia were already transported to smelter center in Gresik, East Java while the rewst were exported as the capacity of Gresik smelter could only accommodate 40% of PT Freeport quota. Eveb the capacity had to be shared with PT Newmont so PT Freeport only sent 30% while the other 10% was sent from PT Newmont.

They were worried that if the Central Government did not ease rules, PT Freeport would have to reduce remaining production quota by 30%-40%. By such consequences as head of SPSI which commanded tens of labor unions, most of which were in Freeport mining area, feared mass workers dismissalsmightt have to happen.

With production downturn of around 60% to 70%, mining field areas would not need too many workers. Certainly there were 18 to 20 thousand workers who would be dismissed of the total 31,000 workers active today.

Just like demand of PT Freeport workers, the Regent of West Sumbawa, West Nusa Tenggara, Zulkifli Muhadi said he had sent a letter to president SBY to ask that PT Newmont Nusa Tenggara [NNT] be given dispensation to export raw mineral ore after Law No.4/2009 on Mining was put in effect on January 12, 2014.

The provincial Government of West Sumatra supported execution of the Law but they asked the prohibition to export mineral ore be suspended until they [PT Newmount] had smelters in operation. The Regent argued that the request was forwarded because of fear there would be mass dismissal of workers when the Minerba law was put in effect. As known the NTT province was onlky able to produce ores amounting to 800,000 tons per year.

Of the total product, the smelter in Gresik, East Java was only able to absorb 30%. If by January 12 2014 this US based company was no longer allowed to export ore, automatically the production would be lowered according to Gresik smelter absorption capacity which might lead to mass dismissals. As he did not wish mass dismisals to happen in his region, Zulkifli the regent had asked for dispensation for PT Newmont.

He even remarked that if PT Newmont was replaced by PT Antam Tbk, I would not solve problems. The problems was there was no smelters in West Sumbawa. So the Minerba Law could not be implemented because there would be multiplier effect, i.e. there would be workers mass dismissals in West Sumbawa. Even of PT Newmont was replaced by PT Antam it would not change the situation as there was not a single smelter in West Sumbawa.

Noteworthy was the statement of the Indonesia Mineral Producers Association [Apemindo] who denied Government’s statement that mining operators were involved in the decision making process to prohibit export of mineral ores. Apemindo’s statements simultaneously answered statement of the Director General of Mineral and Mining, Ministry of Mineral Resources R.Sukhyar who said that the Government and businessplayers agreed on the obligation to process and purify mineral ores.

Apemindo complained that the information was misleading; the Government mentioned only a few permit holding miners [IUP] whom the Government claimed as having signed the agreement, but Apemindo was never in volved in, or agreed to, the stipulation. Such was statement of the Chairman of Apindo, Poltak Sitanggang as quoted by the print media. According to Poltak, Apemindo who organized and accommodate 680 mining operators in Indonesia firmly rejected the regulation to prohibit export of mineral ores by the Government per January 12, 2014.

The Government had issue around 10,600 mining permits, so if only 213 had agreed to the rules it did not represent Apemindo at all. Apemindo had written an open letter to the government and Parliament containing some important points for promoting mineral industry in Indonesia and recommended the Government to take the following steps.

Firstly, to cancel the Regulation which prohibited export of raw mineral ores.

Secondly, to open a forum for comprehensive dialogue between businesspeople, the Government, and House to scheme up a strategic plan and road map in relation to processing and purifying mineral ores at home for national interest an maximum benefit to the people.

Thirdly, to extend export permit for miner companies who were commited to build smelters in the country.

Fourthly, to build infra structure and power house to support mining industry whereby to accelerate the process of smelters buildong for ore processing and purification at home.

Fifthly to set up regulation for space planning related to smelter building, considering the B3 wastage which was extremely dangerous to Man’s health. Such were the points expected by Apemindo from the government, but what they got was prohibition of raw mineral ore exporting.

In regard to the above, in the near future Apemindo planned to run national grand meeting because in Law no 4/2009 there was no point that mentioned restriction of mineral export. And so far there was no guidline of any sort on the technical execution which restricted export of raw mineral ores and the obligation to build smelters.

In their opinion, it was not right to export products when there was still scarcity of raw materials for domestic need. In a condition of abundance of raw materials due to export restriction of raw materials it would only bring low profit to downstream producers as price of raw materials were low and abnormal.

So it might be concluded that the government’s policy to restrict export of raw ore materials which would be due on January 12, 2014 still triggered polemics. There were some who related export prohibition of raw ores with trade deficit in Indonesia. Over four quarters up to quarter III/2013 deficit in Indonesia’s trading was posted at USD 9.7 billion or equal to 1.1% of GDP.

To illustrate, prohibition of export of raw mineral ores was predicted to reduce Indonesia’s export or ores to the amount of USD 5 billion per year.

Assuming that other product remained unchanged, deficit in trading would expand from USD 9,5 billion [1.1% of GDP] to USD 14.7 billion or 1.7% of GDP.

The discourse of trade deficit was still speculative since at global level there was strengthening of USD value due to US Tappering Off by the Fed, by end of Quarter II-2013 until mid quarter III/2013 Rupiah was depreciated by 16% as trade deficit increased to 1,3% of GDP against 0.4% of GDP in quarter II to become 1.7% of GDP in quarter II/2013.

Thereby prohibition of export of mineral ores would expand deficit to 0.6% of GDP against deficit in Indonesia’s trade balance [due to reduction of mineral ore export worth USD 5 billion] or around half of Rupiah depreciation of 16 percent. The estimate was inclusive of the potential import due to higher need for important components for the downstream industry.

A speculative opinion could be right or wrong, but it seemed that the Ministry of Energy and Mineral Resources persisted to restrict mineral ore per January 2014. The Government would prohibit export of ores like nickel, bauxite and copper which would cause state’s income to be reduced by millions of dolar per year.

The prohibition was expected to force mining operators to build smelters to purify minerals at home. Mining operators expressed their grievances that to build smelters was a long and costly process. If it must be there by January, it was mission impossible and might generate a wave of joblessness.

Susilo Siswoutomo, Deputy Ministry of Energy and Mineral Resources said that the Government was trying to make a compromise. Susilo said that the concept of smelter building was most reasonable; in a way it might be disadvantageous but some mining operators would be exempted from the rule. Companies should be criticized for only willing to dig and sell, they should have made feasibility study long time ago. Mineral processing would multiply added value by ten fold.

The Deputy Ministry said that the Government would only make it compulsory for natural resources to be processed and purified in Indonesia, because natural resources should be used to promote people’s prosperity. The Government did not wish to talk about escavating mineral ore and sell them, such was againt the Constitution. He said that the Law required ore purification to be done in Indonesia; so any reason to justify rejection was rated as irrelevant.

The point was that the Government must find a wayout of uncertainty before starting purification on January 12 2014 next. Mining operators should not have another period of transistion; but there must be a wayout. So the Government demanded mining operators to run Law no 4/2009 on mineral and coal [Minerba] without dismissing workers.

According to Irianto Simbolon, Director General of Industrial Relationship and Social Security, Ministry of Labor and Transmigration, the Government would take some measure to anticipate massdismissals related to the execution of Law no 4/2009 on January 12, 2014. The point was that the Government would insist mining operators to take preemptive measures among others to discharge some workers first. The point was that companies could not dismiss employees according to Law no 13/2013 on Labor Force.

In that Law employers and employees were expected to use the services of bipatrit agency at company’s level to settle industrial relationship with employees that might arise due to the application of the Mineral-and-Coal Law. Companies were expected to maintain good industrial relationship with workers.

In response to the above polemics, the Ministry of Energy Jero Wacik stated that the Government would run the Mineral-and-Coal Law. In this case there were at least two conclusions from the Coordinative Meeting today. The first conclusion of Meeting was that the Government would exercise Law no 4 on Minerba consistenly. Meaning since January 12, 2014 export of raw mineral would no longer be permitted.

The second conclusion was that companies who were not doing processing and purification were no longer permitted to export raw materials. Companies who were already doing processing and purification of metals would be regulated further in the new Government’s regulation.

This Government Regulation would be released before January 12, 2014. The Government was very serious about dissecting this Minerba Law as it concerned the life of mining industry including the environment for Indonesia today and tomorrow. However the Ministry of Energy and Mineral Resources was not willing to explain in detail content of the Regulation.

In support to Ministry Jerro Wacik’s statement, Coordinating Minister Hatta Rajasa underscore the Government would prohibit export of raw mineral ore. The Minerba Law would be consistenly exrcised and there could be no other interpretation of the Law.

In regard to processing and purification there was already processing of ores underway; purification was beginning but not 100 percent productive. The Government Regulation was regarded as wayout before January 12, 2014 soon. Hopefully the polemic over the Minerba law would be settled once and for all so there would be certainty in mining business. (SS)

Business News - January 3, 2014

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