Policy Review: Downstream Industry Urges Incentives


JAKARTA (TheInsiderStories)—Indonesia urges to set up new incentive to boost the mining downstream industries. The country is currently trapped in a stagnation on this sector.

Indonesia’s mining sectors have long served a large portion of Indonesia economy. The country remains a major producer of coal, copper, gold, tin, and nickel in the world with the total share of mining products in total exports to 18 per cent in 2013. The natural resource was largely contributed to the non-tax state revenue of Rp90 trillion (US$6.57 billion) and 7.2 per cent of GDP in 2016.

However, these mining exports were mostly from raw materials that did not bring optimal revenues to the country. Therefore, Indonesia’s government started to bolster downstream industry by imposing raw materials export ban since Jan. 12, 2014 to Jan. 11, 2017.

Based on this regulation, the export concentrates were only permitted if the mining company was able to meet requirements to build processing facilities or smelter while also paying increase export duties.

The regulation was revised in January 2017, when the government passed the government rule No. 1 of 2017 and Ministerial decree No. 5 of 2017. It relaxed the export ban with the three requirements.

First, a Contract of Work company must change its license to a special mining permit (SPM) that valid for five years with maximum twice extended. Second, mining companies with SPM are required to build smelters within five years.

The government will check the smelter progress every six months. Third, mining companies are also required to divest up to 51 per cent gradually over ten years.

Slow Progress

Pushing the mining companies to build smelters probably be a potent recipe to save the country’s revenue but it is highly unlikely to succeed since it has taken place in an era of low commodity prices. The pessimistic in downstream business can be reflected on the slow progress of smelter development in many companies, according to the Ministry of Energy and Mineral Resources (MEMR) data in December 2017.

PT Freeport Indonesia, PT Ceria Nugraha Indotama, PT Dinamika Sejahtera Mandiri, PT Lobindo Nusa Persada embarrassingly only reached zero progress. Furthermore, nickel companies PT Wanatiara Persada, PT Sambas Mineral Mining and PT Ifishdeco only recorded the low progress of 5.34 per cent, 3.21 per cent, and 39.01 per cent respectively.

Those companies are at high risk of the export ban because the export permit can be achieved if the smelter development reaches 90 per cent of progress per period, according to the Government Regulation No. 01/2017.

EMR’s Mineral and Coal Director General Bambang Gatot Ariyono earlier threatened the low progress mining companies by enforcing financial sanctions.

New Incentives

The financial sanction is a good way to enhance the downstream industry, but the government should put more effort by giving incentives for the mining companies who pursue downstream activities.

There has been improving demand for revising the 2009 mining law which one of them suggest to give incentive for the mining companies who build the smelters. In fact, a draft regulation released in June 2016 already have a substance of tax and non-tax incentives for mining companies who build the smelters. However, the government is very slow to replace 2009 mining law, so the new incentives have not been set up.

In addition, the government should resolve the obstacles faced by the mining companies. The mining companies at least faced three constraints in pursuing downstream activities.

The limited infrastructure availability becomes a significant problem of smelters development. The mineral resources are mostly in outside of java where the transportation and electricity remain limited.

Another problem is the lengthy business permit, a major problem in Indonesia who has embarrassing ease of doing business ranking of 72nd for 2018.

Email: fauzulmuna@theinsiderstories.com