The Truth Hurts
In mid-March, Agence France-Presse (AFP) posted an article, “Jakarta Mining Policy Shift Sparks Turmoil,” which was picked up by most of the wire services, especially the local news outlets in Indonesia. As far as mining pieces in the mainstream press go, it was fair. It documented Indonesia’s about-face on its mineral exports, saying it is creating another headache for mining companies struggling to work with the country. That policy change has led to a standoff with one of its biggest partners in the mining business, Freeport-McMoRan.
At the beginning of the year, Indonesia relaxed a 2014 law, banning ore exports. While trying to spur domestic smelting, Indonesia discovered it had shot itself in the foot when the mines began to close. Jobs disappeared along with mining-related tax revenue. The article also explained that, while some firms stood to benefit from the rollback, the companies that invested billions in Indonesian smelting operations are angry to say the least.
The article caught the attention of Indonesian Ministry of Energy and Mineral
Resources’ and they responded, saying the headline was misleading and that the
article discredits the government of Indonesia. What follows is an edited version of
the ministry’s explanation of the situation:
The ministry claimed that the government of Indonesia has been “consistent” in supporting added-value for metallic minerals in domestic downstream processing, in line with Law No. 4 of 2009 on Mineral and Coal Mining (Law 4/2009) and Government Regulation No. 1 of 2017 (GR 1/2017), the follow- up and revision to previously issued regulations. The ministry said Indonesia respects the content of any previous mining agreement. If the Contract of Work (CoW) holders conduct downstream processing within five years of Law 4/2009 promulgating, they may continue their business and are not required to convert the CoW to a Mining Business Permit (IUP). In cases where CoW holders have not conducted downstream processing as referred to in Law 4/2009, Indonesia offers to convert the CoW into a conditional IUP. According to Law 4/2009, Articles 102 & 103, IUP holders are permitted to export concentrate but must construct a processing or smelting facility within five years of the promulgation of GR 1/2017. Progress in smelter construction will be verified independently every six months; if progress within 5 years has not reached 90% of plan, the export permit will be repealed. The most important principle, according to the Ministry, is maintaining justice for the people of Indonesia as absolute owner of the mineral wealth, as mandated in the divestment obligation of the IUP contract.
Sometimes, the truth hurts. Obviously, the article struck a chord with the ministry. The reality as the ministry admits is for seven years Indonesia has lacked consistency with its policy toward mining. The government has raised taxes and royalties and is now demanding that multinational mining companies give them a 51% interest in their Indonesian operations. Even after that long-winded explanation, ministry officials were bold enough to say they still think they can grow mining-related revenue by $3 billion in the next five years. A successful nationalization plan should be an uphill climb where the country earns its stake in the mining companies rather than demanding it. Indonesia’s politicians are learning. Unfortunately, its society is paying the price as investment dollars flee to other markets.
Steve Fiscor, Publisher & Editor-in-Chief, E&MJ