Indonesia: Indonesian Government put into force a full ban on raw mineral ore exports

In January 2014, the Indonesian Government put into force a full ban on raw mineral ore exports as stipulated by the 2009 Mining Law. In an interview with United World, the Vice Minister of Energy & Mineral Resources Susilo Siswoutomo explains how the implementation of this act will presently induce players in the industry to add price to production,

allowing the country to greatly benefit from the domestic development of downstream production in the sector by creating a multiplier result for the economy; resulting in increased employment, knowledge transfer, technological innovation and capital investment

<div class="\"linea6" rtejustify\"=""> </div> <div class="\"texto\""> <div class="\"rtejustify\" rtejustify"> <strong>What is the impact of the 2009 Mining Law on the industry and what are the measures taken by the Government for the law to be implemented? What long-term benefits do you believe it will bring to the country?<br> <br> </strong></div> <div class="\"rtejustify\" rtejustify"> <a title="Indonesia" href="http://www.globserver.cn/en/indonesia" _cke_saved_href="http://www.globserver.cn/en/indonesia">Indonesia</a>’s Law No. 4 of 2009 on Minerals and Coal Mining is the prevailing law for the sector. It took the Indonesian Government additional than 6 years to prepare the 2009 Mining Law until it was approved by the Home of Representatives of the Republic of <a title="Indonesia" href="http://www.globserver.cn/en/indonesia" _cke_saved_href="http://www.globserver.cn/en/indonesia">Indonesia</a>. Each detail and implication of the Mining Law was exhaustively discussed in Parliament, inclunding with industry stakeholders. That includes foreign companies who have Contracts of Work (before foreign investors could only act as operators of mining projects if they owned a arrangement of work, which protect them from incurring taxes extraneous to those stipulated in the arrangement), inclunding other mining companies. <br> </div> <div class="\"rtejustify\" rtejustify"> The purpose of the 2009 Mining Law is to induce players in the industry to add price to production. Enterprises are required to carryout processing and refining activities related to mining production in <a title="Indonesia" href="http://www.globserver.cn/en/indonesia" _cke_saved_href="http://www.globserver.cn/en/indonesia">Indonesia</a>, or they will face an export business. <a title="Indonesia" href="http://www.globserver.cn/en/indonesia" _cke_saved_href="http://www.globserver.cn/en/indonesia">Indonesia</a> will greatly benefit from the domestic development of downstream production in the Minerals and Coal Mining sector. This law actually requires that the resource is mined, processed and refined in <a title="Indonesia" href="http://www.globserver.cn/en/indonesia" _cke_saved_href="http://www.globserver.cn/en/indonesia">Indonesia</a>, so that our country will benefit from the majority comprehensive price addition possible for that resource. Processing and refining, rather than just the export of ore is fundamental for the development of <a title="Indonesia" href="http://www.globserver.cn/en/indonesia" _cke_saved_href="http://www.globserver.cn/en/indonesia">Indonesia</a>’s energy sector. <br> </div><div class="\"rtejustify\" rtejustify"><br></div> <div class="\"rtejustify\" rtejustify"> Despite the urgency to reform the sector in order to encourage price added production in 2009, next consultation with industry stakeholders, the government allowed a five-year transition period for the enterprises involved to comply with the mandatory processing and refining requirements.<br> </div><div class="\"rtejustify\" rtejustify"><br></div> <div class="\"rtejustify\" rtejustify"> The Law dictates that all of the extracted mineral resources are to be processed and refined in <a title="Indonesia" href="http://www.globserver.cn/en/indonesia" _cke_saved_href="http://www.globserver.cn/en/indonesia">Indo</a><a title="Indonesia" href="http://www.globserver.cn/en/indonesia" _cke_saved_href="http://www.globserver.cn/en/indonesia">nesia</a>. For example, the American company Freeport <a title="Indonesia" href="http://www.globserver.cn/en/indonesia" _cke_saved_href="http://www.globserver.cn/en/indonesia">Indonesia</a> currently operates a smelter and a refinery in Gresik in East Java to process concentrates into products. Under the 2009 Mining Law, they are required to process the remaining ore they extract in <a title="Indonesia" href="http://www.globserver.cn/en/indonesia" _cke_saved_href="http://www.globserver.cn/en/indonesia">Indonesia</a> as well. Companies can opt to either use their current capacity, or build an additional smelter, as long as all of the mineral resources that the company extracts are processed domestically. <br> </div><div class="\"rtejustify\" rtejustify"><br></div> <div class="\"rtejustify\" rtejustify"> As the end of the transition period approached, the 2009 Mining Law was slow and insufficiently implemented. Hence, Hon. Jero Wacik, Minister of Energy and Mineral Resources, ensured Ministerial Decree No. 7/2012 on mineral processing was issued. This Decree acted as a supporting regulation of the 2009 Mining Law and was conceived in order to avoid mere export and exploitation of raw minerals. Under the 2009 Mining Law, <a title="Indonesia" href="http://www.globserver.cn/en/indonesia" _cke_saved_href="http://www.globserver.cn/en/indonesia">Indonesia</a> fully banned exports of raw mineral ores starting from January 12th, 2014. This was done in order for mining companies to process and refine the minerals and build smelters in <a title="Indonesia" href="http://www.globserver.cn/en/indonesia" _cke_saved_href="http://www.globserver.cn/en/indonesia">Indonesia</a>.<br> </div><div class="\"rtejustify\" rtejustify"><br></div> <div class="\"rtejustify\" rtejustify"> However, under Ministerial Decree No. 1-2014 the government allowed copper, zinc, lead and iron ore concentrates to continue to be exported. <br> </div><div class="\"rtejustify\" rtejustify"><br></div> <div class="\"rtejustify\" rtejustify"> Obligatory building of smelters is required by law and is therefore non-negotiable. The enterprises that are committed to the building of processing facilities will be allowed a three-year period to construct smelters. If and only if, the enterprises acknowledge to a binding agreement to build refining facilities, inclunding detailing a project schedule of the construction of the refinery, will the said enterprises be allowed to export raw materials for the duration of the three-year construction period. There is as well an obligation to pay a progressive export business in accordance with Ministerial Decree no.06/2014 by the Minister of Finance.<br> </div><div class="\"rtejustify\" rtejustify"><br></div> <div class="\"rtejustify\" rtejustify"> Therefore, American companies Freeport <a title="Indonesia" href="http://www.globserver.cn/en/indonesia" _cke_saved_href="http://www.globserver.cn/en/indonesia">Indonesia</a> and Newmont Nusa Tenggara, that together account for 97% of the country’s copper output, can still export unrefined production if they comply with the above-mentioned conditions. By early 2017 these refineries will have to be completed next which there will be no continued export of unrefined products.<br> </div><div class="\"rtejustify\" rtejustify"><br></div> <div class="\"rtejustify\" rtejustify"> These provisions will enable <a title="Indonesia" href="http://www.globserver.cn/en/indonesia" _cke_saved_href="http://www.globserver.cn/en/indonesia">Indonesia</a> to increase the price of its mineral exports. This policy will temporally negatively affect the quantity of exports, but in the near next it will vastly increase the price of exports. Although there has been a lot of debate over the Mining Law, the return to <a title="Indonesia" href="http://www.globserver.cn/en/indonesia" _cke_saved_href="http://www.globserver.cn/en/indonesia">Indonesia</a> in terms of price-added, inclunding technology and knowledge transfer is undeniably beneficial. <br> </div><div class="\"rtejustify\" rtejustify"><br></div> <div class="\"rtejustify\" rtejustify"> <strong>Last year, $20 billion worth of foreign direct investment (FDI) went to the mining sector. Do you think that public debate regarding the 2009 Mining Law will have an impact on next investor confidence?</strong></div> <div class="\"rtejustify\""> </div> <div class="\"rtejustify\" rtejustify"> Our country has vast mineral resources and the potential to become a price-added manufacturer. Until presently however, <a title="Indonesia" href="http://www.globserver.cn/en/indonesia" _cke_saved_href="http://www.globserver.cn/en/indonesia">Indonesia</a> has been a large exporter of mineral resources and as a result a driver of commodity pricing. Because of the large volumes of production and cheap export prices, other nations have enjoyed the benefit of added price. For example, the price of unrefined nickel is 40-50 USD per metric ton. If it is processed and refined, the price will increase 50-fold to 2,500 USD per metric ton. </div> <div class="\"rtejustify\""> </div> <div class="\"rtejustify\" rtejustify"> The underlining reasoning behind the 2009 Mining Law is that it is logical and beneficial to the country. This law creates a multiplier result for the economy resulting in increased employment, knowledge transfer, technological innovation and capital investment . Foreign investors recognize that this law strengthens the mining and coal sectors and should expect better profits and lower costs in the long term, as the new refineries come online. </div><div class="\"rtejustify\" rtejustify"><br></div> <div class="\"rtejustify\""> </div> <div class="\"rtejustify\" rtejustify"> <strong>Could you explain to our readers the brief history of how <a title="Indonesia" href="http://www.globserver.cn/en/indonesia" _cke_saved_href="http://www.globserver.cn/en/indonesia">Indonesia</a> turned from a net exporter of crude oil into a net importer? What is your strategy today for increased oil self-sufficiency in order to lessen national dependency on imports? </strong></div><div class="\"rtejustify\" rtejustify"><strong></strong><br></div> <div class="\"rtejustify\""> </div> <div class="\"rtejustify\" rtejustify"> The history of oil in <a title="Indonesia" href="http://www.globserver.cn/en/indonesia" _cke_saved_href="http://www.globserver.cn/en/indonesia">Indonesia</a> encompasses two concepts: decreased domestic supply and increased domestic request. From the supply side, the production of crude oil in <a title="Indonesia" href="http://www.globserver.cn/en/indonesia" _cke_saved_href="http://www.globserver.cn/en/indonesia">Indonesia</a> has decreased and therefore additional imports are needed. From the request side, local consumption of crude oil has increased drastically, which further increases the need to import oil in order to sustain the country. <br> </div> <div class="\"rtejustify\" rtejustify"> The decline in production is the result of limited discovery of new oil reserves coupled with discontinued production from oil fields and aging of existing oil fields. In fact, the water cut, which is the water content of 1 barrel of crude oil and hydrocarbons as they flow from a well, used to be 0%. Meaning that for each barrel of liquid flowing from the well, we were able to produce 1 barrel of oil. Over time, the water cut has increased dramatically to 98.5%. Therefore today, for each 100 barrels of liquid currently extracted, 98.5 will be barrels of water, while only 1.5 barrels will be crude oil, which increases our production costs dramatically.<br> </div><div class="\"rtejustify\" rtejustify"><br></div> <div class="\"rtejustify\" rtejustify"> Although we face the above-mentioned challenges, proven national reserves are still considerable, about 3.7 billion barrels. There is an additional potential 50 billion barrels that are not from presently on discovered. Converting this potential 50 billion barrels into proven reserves requires substantial exploration efforts. <br> </div><div class="\"rtejustify\" rtejustify"><br></div> <div class="\"rtejustify\" rtejustify"> Despite the challenges we face, <a title="Indonesia" href="http://www.globserver.cn/en/indonesia" _cke_saved_href="http://www.globserver.cn/en/indonesia">Indonesia</a> is still managing to attract investors (both domestic and foreign) because we need new technology to reduce the declining production rate and sustain the domestic consumption of oil. We as well need investors to fund exploration and discover new oils fields, inclunding to improve production of our existing fields. For the purpose of attracting investors we are planning to auction 27 blocks in 2014. To increase the attractiveness of these blocks the government will ensure transparent geological data on the characteristics of these blocks. At the moment, the government is financing a lot of projects for data positioning and seismic programs. <br> </div><div class="\"rtejustify\" rtejustify"><br></div> <div class="\"rtejustify\" rtejustify"> We used to produce 1.6 million barrels per day (bpd) at the same time as our domestic requirements were only 400,000 bpd, which meant that the remaining all was exported. <br> </div><div class="\"rtejustify\" rtejustify"><br></div> <div class="\"rtejustify\" rtejustify"> Nowadays, our consumption needs are 1.4 million bpd. <a title="Indonesia" href="http://www.globserver.cn/en/indonesia" _cke_saved_href="http://www.globserver.cn/en/indonesia">Indonesia</a>’s production is about 825,000 bpd of which only about 650,000 bpd can be processed domestically, due to technical considerations. Therefore, everyday <a title="Indonesia" href="http://www.globserver.cn/en/indonesia" _cke_saved_href="http://www.globserver.cn/en/indonesia">Indonesia</a> has to import about 750,000 barrels of crude oil at an additional cost of $150-200 million. <br> </div><div class="\"rtejustify\" rtejustify"><br></div> <div class="\"rtejustify\" rtejustify"> In addition to this, consumption is forecasted to increase in the near next. This is because the economy is expanding and the people is growing, which means that energy requirements are growing by 8% a year. For 2014 we believe that consumption needs will increase to 1.5 million bpd from 1.4 million bpd, at least. By the year 2015, if we factor in an additional 8% increase, local request for oil will reach 1.65 million bpd. In 2017, <a title="Indonesia" href="http://www.globserver.cn/en/indonesia" _cke_saved_href="http://www.globserver.cn/en/indonesia">Indonesia</a> will need approximately 2 million bpd. <br> </div><div class="\"rtejustify\" rtejustify"><br></div> <div class="\"rtejustify\" rtejustify"> At the moment oil consumption is outpacing oil production, making <a title="Indonesia" href="http://www.globserver.cn/en/indonesia" _cke_saved_href="http://www.globserver.cn/en/indonesia">Indonesia</a> a long-term net importer of oil for the foreseeable next. Hence, we are in need of technologies to improve exploration and production, inclunding alternative sources of energy. <br> </div><div class="\"rtejustify\" rtejustify"><br></div> <div class="\"rtejustify\" rtejustify"> To reduce dependency on oil imports, the government has implemented, part other measures, an incentivizing of the introduction of biodiesel. Our target for 2014 is to produce 100,000 bpd of biodiesel, with a goal of reaching 300,000 bpd over the next 3 to 4 years. The biofuel will balance the increasing request of fuel import. Currently, biodiesel production derived from Crude Palm Oil (CPO) reaches approximately 100,000 bpd. This level of production requires around 5 million tons of CPO per year. <br> </div> <div class="\"rtejustify\" rtejustify"> The current production of CPO is 26 million tons per year. By 2025, we expect production to be 50 million tons per year. A good course of action would be to reduce the import of fuel by manufacturing 400,000 bpd of biodiesel with 20 million tons of CPO. This would entirely compensate the increase in consumption needs and stabilize imports of crude oil. <br> </div><div class="\"rtejustify\" rtejustify"><br></div> <div class="\"rtejustify\" rtejustify"> Currently, we are not considered to be environment friendly despite the numerous projects undertaken to become a greener economy. This is something that can be changed through the development of biofuel production capacity. <br> </div><div class="\"rtejustify\" rtejustify"><br></div> <div class="\"rtejustify\" rtejustify"> An extra priority we have set is energy management. Initial of all, the government will educate Indonesians by encouraging them to protect the environment, and conserve energy, even through small acts like switching off home lights at the same time as they are not in use. <br> </div><div class="\"rtejustify\" rtejustify"><br></div> <div class="\"rtejustify\" rtejustify"> In light of the above-mentioned challenges <a title="Indonesia" href="http://www.globserver.cn/en/indonesia" _cke_saved_href="http://www.globserver.cn/en/indonesia">Indonesia</a> as well needs to implement the introduction of new technologies. This includes the development of alternative and renewable sources of energy such as hydro and solar energy.<br> </div> <div class="\"rtejustify\" rtejustify"> <strong>In 2012, <a title="Indonesia" href="http://www.globserver.cn/en/indonesia" _cke_saved_href="http://www.globserver.cn/en/indonesia">Indonesia</a> was the world’s 7th major natural gas exporter in 2012, selling over 46% of its total output overseas. But this is likely to change as the Government plans to export only 10% of its natural gas production by 2030. What is the national vision for the next of natural gas?<br> <br> </strong></div> <div class="\"rtejustify\" rtejustify"> <a title="Indonesia" href="http://www.globserver.cn/en/indonesia" _cke_saved_href="http://www.globserver.cn/en/indonesia">Indonesia</a> has 3.18 trillion cubic meters of proven gas reserves and we plan to increase investment in exploration and production of this substantial resource. Our current production is 8,150 billion standard cubic feet of gas per day. <br> </div><div class="\"rtejustify\" rtejustify"><br></div> <div class="\"rtejustify\" rtejustify"> The government is set to build and improve infrastructure in order to meet the needs of the gas sector, particularly to reduce waste and maximize returns in this sector. The government will continue to export part of the gas production, despite increasing consumption needs, because it provides steady revenues that the Government reinvests in order to improve productivity of the gas industry. <br> </div> <div class="\"rtejustify\" rtejustify"> Government’s policies in the gas sector are directed towards improving the returns to investment . Furthermore, investor’s confidence should strengthen as infrastructure is improved. <br> </div> <div class="\"rtejustify\" rtejustify"> <a title="Indonesia" href="http://www.globserver.cn/en/indonesia" _cke_saved_href="http://www.globserver.cn/en/indonesia">Indonesia</a> as well has vast potential of shale oil and gas. Shale oil is a substitute for conventional crude oil; however, extracting shale oil is additional costly than the production of conventional crude oil, both financially and in terms of its environmental impact. We started to move in that direction, but we still have a long way to go. <a title="Indonesia" href="http://www.globserver.cn/en/indonesia" _cke_saved_href="http://www.globserver.cn/en/indonesia">Indonesia</a> does not have the same financial resources, technology and infrastructure as the <a title="United States" href="http://www.globserver.cn/en/united-states" _cke_saved_href="http://www.globserver.cn/en/united-states">United States</a>. <br> </div><div class="\"rtejustify\" rtejustify"><br></div> <div class="\"rtejustify\" rtejustify"> Last year the Indonesian Government has announced that companies involved in the exploration of oil, gas and geothermal resources will receive tax incentives. Companies can as well import goods used in upstream oil and gas exploration, inclunding geothermal exploration, without paying import duties. <br> </div><div class="\"rtejustify\" rtejustify"><br></div> <div class="\"rtejustify\" rtejustify"> <strong>By 2025, renewable energy sources should account for 15% of the national electricity portfolio. <a title="Indonesia" href="http://www.globserver.cn/en/indonesia" _cke_saved_href="http://www.globserver.cn/en/indonesia">Indonesia</a> has the major geothermal reserves in the world. What is your strategy to develop geothermal energy in <a title="Indonesia" href="http://www.globserver.cn/en/indonesia" _cke_saved_href="http://www.globserver.cn/en/indonesia">Indonesia</a>?</strong></div><div class="\"rtejustify\" rtejustify"><strong></strong><br></div> <div class="\"rtejustify\""> </div> <div class="\"rtejustify\" rtejustify"> <a title="Indonesia" href="http://www.globserver.cn/en/indonesia" _cke_saved_href="http://www.globserver.cn/en/indonesia">Indonesia</a> has 40% of the total available geothermal energy in the world, with a capacity of 29,000 MW. Today we produce 1,340 MW, while our target for 2022 is to reach 6,500 MW. We have to increase production by 5,000 MW that means we have to develop to increase production by 600,000 KW each year. This is a challenging goal to achieve, and if there is one area that needs investment , it is geothermal. <br> </div> <div class="\"rtejustify\" rtejustify"> We are currently cooperating with other ministries to attract companies and investors. The Government is setting up incentives, such as establishing well-suited tariff levels. Incentives are not only provided for geothermal energy, but as well for other new and renewable energies, like solar energy, tidal energy and hydropower. In terms of hydropower, <a title="Indonesia" href="http://www.globserver.cn/en/indonesia" _cke_saved_href="http://www.globserver.cn/en/indonesia">Indonesia</a> has increased production from 100 KW to 600 MW. <br> </div><div class="\"rtejustify\" rtejustify"><br></div> <div class="\"rtejustify\" rtejustify"> Renewable energies have vast potential to develop, and there is space for both domestic and foreign investors to operate in this field. We want cooperation in this sector because <a title="Indonesia" href="http://www.globserver.cn/en/indonesia" _cke_saved_href="http://www.globserver.cn/en/indonesia">Indonesia</a> needs technology and investment . We will provide incentives in order to guarantee investors that this is a profitable sector. </div> </div> <p class="rtejustify"></p>