Indonesia Targets Completes 57 Smelters Until 2022

Bantaeng Smelter in Makassar, South Sulawesi - Photo by AP3I

JAKARTA (TheInsiderStories) – The government targets the development of mineral processing and refining facilities (smelters) until 2022 to complete the construction of 57 smelters that will operate. But until now, there are only 27 smelters in operation, so that 30 more smelters are needed to operate throughout the next four years.

At a meeting with the Parliament in Jakarta last week, Minister of Energy and Mineral Resources Ignatius Jonan explained that until 2018, there were a total of 27 smelters operating. Most came from Nickel commodities with 17 smelters. The remaining 2 copper smelter, 2 smelter bauxite, 4 smelter iron, and 2 smelter commodities. The amount includes the addition of 2 new nickel smelters which were operating last year.

As for the plan until 2022, Jonan detailed that there will be an additional 3 copper smelters, 16 nickel smelters, 5 bauxite smelters, 2 iron smelters and 4 lead and zinc smelters.

“Progress realization of the obligation to build a smelter or downstream for copper, nickel, bauxite, iron, manganese and lead and zinc products in 2016 was 20 smelters, in 2017, nickel increased by 3 smelters, and 2 smelters. In 2018, nickel smelters increased as many as 2 smelters. The total realization until 2018 was 27 smelters, he said.

Jonan noted, there are 2 smelter for copper products that are existing and the plan is 3 smelters, so the number will be 5. Nickel there are 17 existing ones and there are 16 smelter plans, so that the total will be 33 smelters. Existing bauxite 2, there are 5 plans, so the number is 7. Iron, existing existing 4 and plan 2, existing manganese there are 2 and there are no plans, lead and zinc are planned for 2 smelters.

For 2019, Jonan targets at least two smelters ready to operate. One of them is a ferronickel smelter owned by PT Aneka Tambang Tbk, located in East Halmahera, whose plans will be completed in the middle of this year.

Furthermore, Director General of Mineral and Coal Bambang Ariyono said, even though the majority of smelters were built using Mining Business Permits (MBP), some also used Industrial Business Permits (IBP).

According to Ariyono, each smelter has varying progress, according to the plan (S Curve) submitted and reported to the ministry of energy and mineral resources (MEMR). Reportedly, according to ministerial regulation Number 50 of 2018, periodic supervision is carried out every six months and must achieve progress of at least 90% of cumulative calculated plans by independent verifiers.

In this case, Ariyono emphasized that the government had acted firmly on companies that were not in accordance with the provisions, including by giving sanctions in the form of revoking export recommendations.

“The progress of each is different, some are 0-10%, some are 10% -20%, some are 30% -50%, all are original. As long as the S curve, it doesn’t fit (revoke export recommendations),” he said.

To this day, there are two companies that are subject to sanctions for revoking the export recommendation. Namely the nickel company PT Surya Saga Utama and the bauxite company PT Lobindo Nusa Persada, he added.

Ariyono admitted that his party was still waiting for a report that had been verified by an independent verifier from the two companies. The obligation of both of them to pursue a development plan six months before and submit a development plan for the next period must still be carried out.

Meanwhile, The Chairperson of the Indonesia Mining Institute (IMI) Irwandy Arif said that it needed extra effort to accelerate the construction of smelters in order to reach the target. Because, if we look at the existing data, since it was required in Law No. 4 of 2009 concerning Mineral and Coal Mining, on average there are only three smelter units that can operate every year.

Arif gave an example, in 2010-2011 only three smelters were operating. The average additions from 2012-2018 are three smelters per year, except in 2015 which were seven smelters.

So, he added, if using the growth rate of the smelter, then the addition in the next three years would only be 9 smelters. So, a total of 27 smelters have been operating, plus 9 new smelters, reaching only 36 smelters. Still far from the target of 57 smelters, unless there is acceleration.

According to Arif, each company has a different challenge in realizing the target of building a smelter. Mainly is a high investment constraint.

Regarding the investment issue or economic value, Arif considers that it depends on the commodities processed, as well as the readiness of the market chain of commodities and their processed products. Because, if it is not prepared, then the margin between this downstream business will be smaller than the upstream business, considering that the large funds needed to build the smelter are not quickly replaced because they are classified as long-term investments.

Arif gave an example, for PT Freeport Indonesia with its copper concentrate, the margin from its upstream business was still smaller. But if other commodities such as Nickel from upstream to downstream have been proven by PT Antam and PT Vale, also PT Bintang Delapan. For Bauxite, there is also a PT Antam smelter, he explained.

Whereas apart from the above factors, there are a number of other obstacles which, according to Arif, make the construction of smelters slow. First, it is related to the supply of energy and the availability of limited road, port and access infrastructure. Second, regarding the imposition of ore rotalty rates and proceeds of processing or refining.

Third, the issue of licensing, namely the barriers to licensing in the conversion of land and the existence of two permits from MBP and IBP. Fourth, supply difficulties for smelters who do not have mines, and fifth, policies to encourage the construction of smelters that are still not firm. If that can be overcome, the smelter business will run smoothly, he said.

Meanwhile, Minister of Industry Airlangga Hartarto, today, officially opened the PT Virtue Dragon Nickel Industry (VDNI) nickel smelter industry in Konawe, Southeast Sulawesi. PT. VDNI has realized an investment of around 1.4 billion US $ for 15 production lines in Konawe, with a production capacity of 600 to 800 thousand tons per year of Nickel Pig Iron (NPI).

The operation of this company adds to the contribution to export growth. This nickel smelter investment absorbs 6,000 workers, most of them are native of Southeast Sulawesi. As a multiplier effect, it opens up employment opportunities for 10,000 other people.

Hartato welcomed the investment in PT VDNI nickel smelter. He also supports integrated industrial development that is capable of producing world-class stainless steel from this region. This will make the island of Sulawesi a center for stainless steel-based industries with a total capacity of more than 6 million tons per year.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com