Indonesia’s parliament approved sweeping
changes to the nation’s mining law, allowing the world’s top
nickel and coal producer to hand out longer contracts to
companies pledging to invest billions of dollars to develop the
industry.
The amendments, cleared by lawmakers on Tuesday, will help
Indonesia create a supply chain of mineral resources for
industries such as stainless steel, alumina, cables, fertilizer
and cement, Energy and Mineral Resources Minister Arifin Tasrif
told parliament.
Under the new bill, companies can secure license to exploit
minerals for as long as 30 years over areas as large as 25,000
hectares. While the concession will be linked to explorers
committing to develop processing industries, the government will
offer some flexibility in meeting deadlines, according to
Tasrif.
The revamp of mining rules are in line with President Joko
Widodo’s goal of transforming the commodity powerhouse from a
raw material exporter into a supplier of processed minerals and
value-added products. The president has aggressively wooed
global investors into its nickel and stainless steel industries
to help make Indonesia a global hub for electric vehicles.
“The new law will bring about a paradigm shift in the
business that has been so far focused on selling raw materials
without increasing its value and gives legal certainty for all
mining stake holders,” Tasrif said. “Most importantly, it will
bring benefits for the nation’s people.”
The government can allow miners mandated to build smelters
to export a certain quantity of unrefined minerals for a maximum
of three years. Existing mining permit holders can also seek
extensions of so-called contracts of work to special mining
permits with coal explorers allowed to seek concessions to more
than 15,000 hectares. Holders of mining permits for base metals
may be allowed to expand production area from 25,000 hectares,
according to the revised rules.
Ownership Rules
The government has retained the clause requiring foreign
miners to divest 51% of the equity to local investors or
companies over a period of time. But Tasrif said the requirement
will not be allowed to hamper investment.
Indonesia has been at the forefront of efforts in emerging
markets to extend its sway over local commodity riches by
boosting control of top mines, including the copper trove that’s
been developed by Freeport-McMoran Inc., and insisting more
processing is done at home. It also banned nickel ore exports,
two years earlier than planned, to lock in supplies for dozens
of smelters that are under construction.
Indonesia Shocks Nickel Market Again With Early Export Halt
While the industry welcomed the amendments, the Indonesian
Mining Association said the law should be further modified to
grant mining rights over the entire reserves of a concession.
Payback Period
“A mine needs at least eight years before it starts
producing and the payback period is pretty long term,” Djoko
Widajatno, the association’s executive director, said in a text
message. While it’s fine for the government to own majority
control of resources, the businesses must be run by
professionals, he said.
If the government is serious about developing a downstream
coal industry, it should be willing to offer investors more
fiscal incentives and ease the permit process, Indonesia Coal
Mining Association Executive Director Hendra Sinadia said.
PT Adaro Energy plans to seek an extension of its coal
mining contracts under the new rules early next year, President
Director Garibaldi Thohir said Tuesday. The company, which aims
to produce as much as 58 million tons of coal this year, said
its existing mining rights are valid until 2022.
The passage of the law triggered a rally among some
Indonesian metals and coal producers. While nickel producers PT
Aneka Tambang and PT Vale Indonesia climbed as much as 4.9% and
2.1% respectively, tin producer PT Timah advanced as much as
2.5% and coal miner Resource Alam Indonesia surged as much as
5.3%.
More details on the revised mining law:
* Central government has authority to set volume of output,
sales and price for various minerals and coal
* Mining area can’t be altered for other use
* Miners required to allocate funds for community development
programs
* Existing special mining permit holders must switch to industry
permits within one year
* Government to formulate a sustainable plan for national
mineral and coal management
(Bloomberg)