While many industries shape the robust economy of Indonesia, one of them is leading the pack: industrial. And within this sector, two stars shine. One of these is mining.
The sector contributes massively to the country’s GDP. Although it pales in comparison to that of construction and manufacturing, it beats that of agriculture, services, and utilities. In 2011, about 11 percent of Indonesia’s GDP came from this industry.
Mining is popular in the country for one reason: it is abundant in natural resources. It is the world’s biggest exporter of thermal coal. It is also a well-known supplier of copper, gold, nickel, and tin.
Foreigners who wish to participate in the industry need to know one thing, though: it is highly regulated. To make sure you will find huge success here, Cekindo has come up with the basics of Indonesian mining industry.
Basic Mining Commodities
Indonesia produces and/or exports a wide variety of mining commodities. These include the following:
In spite of the growth of renewable energy supply and demand, most countries still use fossil fuels for power generation. One of the biggest sources of it is Indonesia. It is the number one exporter of thermal coal, which is also known as steam coal.
Coal reserves are also high. While the estimated worldwide supply can last for around 110 years, those of Indonesia can be worth 83 years even with continued production.
This product also enjoys a distinct advantage in terms of demand. Its most prominent markets are India and China, which have huge populations. China, in particular, will increase its need in the next few years. For one, it’s changing the kind of coal they are using for power generation. It will import low-sulfur ones from Indonesia in an effort of lowering the country’s carbon emission. Furthermore, the demand goes up during heavy winter conditions.
The forecast data revealed that Indonesia might be able to produce 2,376 tonnes of nickel in 2020. Nickel remains a vital raw material in many industrial applications. These include electroplating and the production of stainless steel. But moving forward, its biggest demand will be in electric cars due to the use of lithium-ion batteries.
Indonesia is also one of the biggest producers of gold. In 2016 and 2017, it amassed 80 metric tonnes. The country also has the world’s largest gold mine called Grasberg Mine. It can be found in the tallest mountain of Papua. In 2016, the production reached more than a million pounds of gold.
Note: Grasberg Mine is also the world’s second-biggest source of copper. In 2016, it had almost 1.23 billion pounds of the mineral.
The Biggest Challenges
Mining offers some good opportunities to foreign investors, but it also presents serious challenges. Here are some of them:
The industry is regulated by the Mining Law (Law on Mineral and Coal Mining No. 4) of 2009. It provides the framework for both the management and control of the industry. But one of its reasons is to protect the national interest, especially since it defines its minerals as non-renewable resources.
The regulations have many provisions including the requirements for the issuance of licenses, but perhaps the major source of contention is the export.
The law, which was actually an amendment to the 1967 law, required the domestic processing of the minerals. The purpose is to encourage the construction of smelting facilities that will increase the value of the minerals, as well as generate jobs. But a further provision in 2014 imposed an export ban that has not been processed.
The mining companies also needed to meet a certain level of purity for their minerals before they can export them, and the percentage can vary depending on the minerals.
These regulations were a cause of concern for the business operators. Eventually, the government “softened” the rules, allowing them to export unprocessed minerals provided they meet certain conditions.
These include setting aside 30 percent of their smelting capacity to low-grade nickel processing. They also had to divest no less than 51 percent of their local operations to Indonesians. Most of all, they had to convert their long-term contracts of work (CoW) to the single-based license system.
Changes in Taxation and Licenses
The 2009 Mining Law also introduced the single-based licensing system, which somehow changed the landscape of business operations dramatically. Before, businesses enjoyed concessions in their contracts of work. With the changes, the new entrants could no longer take advantage of such incentives.
Perhaps the glaring example is the ongoing battle between Freeport-McMoran and the Indonesian government, where the latter wanted the former to convert their CoW to Izin Usaha Pertambangan Khusus, which is the special license before they can continue exporting copper concentrates.
Indonesia has the privilege to expand or change the laws and regulations whenever it seems fit. This can be problematic since it creates a more uncertain environment within the industry. It can prevent businesses from drafting their long-term growth plan.
Getting the Mining License
This is just an overview of the process:
- First, you need to make sure the business is non-oil or gas mining activity. This sector has its own restrictions in terms of operations and foreign ownership.
- Determine whether the activity is non-core or core. Core activities include the divisions of feasibility, exploration, public investigation, processing and refining, mining, after-mining services, reclamation, transportation, mining construction, mining environment, and work safety and health. Anything else that doesn’t fall into these categories is considered a non-core service.
- See to it that you’re running a PT PMA company. You also need to work closely with the country’s Investment Coordination Board (BKPM).
- Gather your required documents. The papers you need depend on what license you’re trying to get. Cekindo can help you determine which papers you should submit to the Directorate General of Mineral and Coal. Keep in mind that you cannot make any error in this step. Otherwise, the directorate can reject your application for a license outright.
- There are two types of licenses to choose from: Izin Usaha Jasa Pertambangan (IUJP) and Surat Keterangan Terdaftar (SKT). But the general term for the license is IUP. You can get this from the Ministry of Energy and Mineral Resources.
- Make sure you’ve gone through the tendering process. It basically determines whether you have a right over a particular mining site. Only the government can conduct this procedure. Once you already secured the right, you can now get the IUP.
Cekindo Can Help You
Being in the business for more than a decade, we’ve helped several mining companies that wish to establish an operation in the country. We can provide you with assistance in the following areas:
- Securing of the licenses including the processing and making follow-ups
- Gathering the necessary documents
- Providing professional advice to increase your chances of getting accepted
- Giving taxation and accounting services
- Offering more ideas on the laws and regulations of the industry
We can help ease the burden and the confusion that often happened during the registration and licensing stage. We are one with you in ensuring you can set up a mining service in the country with less hassle, better efficiency and cost-effectiveness, and speed.
For more information about mining service license in Indonesia, email us at email@example.com. You can also call us at +6221 30 061 585.