JAKARTA – Indonesia’s exports of mineral ore are now at a standstill, with unprocessed bauxite and nickel the target of an outright ban and mining companies either refusing or unable to pay the draconian new export duty on copper and the other concentrates that were given a 12th-hour three-year extension.
That’s only half of the story. Far from clear is whether enforced on-shore processing of mineral ores will actually work when there are serious doubts about the economic viability of building smelters and hydrometallurgical processors in an already over-supplied global market.
The dysfunctional way in which the government has implemented the new value-added policy, with unrealistic deadlines and a clear lack of preparation or understanding of its own contracts of work (COW), has shaken the Indonesian mining industry to its core.
A government regulation extending the January 12 ban for copper giants Freeport Indonesia and Newmont Nusa Tenggara and 66 other, mostly Indonesian, mining companies was undercut the next day by the export tax, which rises from an already daunting 20-25% in the first year to a prohibitive 60% in the second half of 2016.
This year’s legislative and presidential elections in April and July make it highly unlikely any relief will be forthcoming, at least to the industry’s satisfaction, unless the trade deficit widens alarmingly or until a new administration is installed in October.
In the meantime, already rampant ore smuggling will likely increase dramatically and the central government may face a rising tide of resentment from provincial administrations, angry at losing a valuable source of revenue and worried about social unrest from newly-unemployed mine workers.
Trotting out fanciful figures gobbled up by a nationalist Indonesian media, officials contend the benefits from building the new plants in the next three years will more than make up for the short-term loss of tens of thousands of jobs and billions of dollars in export revenues.
According to one optimistic forecast, the value of copper cathode and aluminum alone will have doubled by 2017, the seemingly magical year when some bureaucrats have talked grandly about finished metal contributing to a five-fold increase in national mining revenues.
But while the government claims there are 25 projects either under construction or at various stages of advanced planning, the available evidence suggests they will fall far short of filling the yawning revenue gap – even in the medium term – at a time when world mineral prices have taken a dive.
Conflicting reports show the seven projects supposedly nearing completion will refine only modest amounts of zircon, iron sand, iron ore, bauxite, manganese and nickel, with another 10 less than 50% complete.
Indosmelt’s long-planned US$1.5 billion copper smelter in South Sulawesi is not among them – and, most crucially, is still awaiting financing – and the two alumina plants being built will absorb less than 20% of the 15 million tons of bauxite ore Indonesia shipped in 2011.
Alumina processing does make sense. The government recently took full control of Indonesia’s sole aluminum smelter from its Japanese partners, but as it has done for the past 30 years the plant continues to use imported alumina, the product from the intermediate stage of the refining process.
Nickel doesn’t look any rosier. Bintang Delepan is still in the very early stages of a $1.2 billion, 300,000-ton nickel processor in Central Sulawesi. But apart from two small Chinese-funded nickel pig iron plants, there is little else to point to that would make a dent in previous ore production.
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