A controversial U-turn on mineral exports has sparked turmoil in Indonesia’s key mining sector, providing a fresh headache for firms struggling to work in Southeast Asia’s biggest economy.
Despite sitting atop some of the world’s most abundant natural resources, successive governments have failed to take advantage of its vast riches, with critics blaming badly thought-out and nationalistic policies that make the country an uncertain place to invest.
The latest overhaul has sparked a potentially damaging standoff with one of the US’ biggest miners and a major investor in the country.
Photo: AFP
Jakarta in January relaxed a 2014 landmark ban on shipments of raw mineral ores, which was originally aimed at spurring the domestic smelting industry, but led to mine closures, job losses and a fall in government revenues.
While some firms may stand to benefit from the rollback, it has infuriated companies that invested large amounts on operations for smelting.
In addition, the government asked firms to sign new permits that critics say offer less protection, triggering a standoff with US giant Freeport-McMoRan Copper & Gold Inc, which has stopped shipments from its huge copper and gold mine in the country’s east.
The move is the latest in a series of regulatory changes from the government that have caused jitters among miners, with some foreign firms choosing to exit Indonesia rather than deal with such an unpredictable environment.
“One of the inherent problems in the Indonesian mining industry over the last few years has been the lack of consistency in government policy, with the government changing its mind quite regularly and unexpectedly,” Jakarta-based lawyer and mining expert Bill Sullivan said.
Authorities have raised taxes and royalties on shipments and demanded that foreign miners reduce the stakes in their Indonesian operations to less than half.
In June last year, US gold mining giant Newmont Mining Corp sold its share in an Indonesian mine to local investors after more than three decades, citing more onerous regulations as a factor.
The world’s second-biggest miner, Rio Tinto PLC, is reportedly considering walking away from its stake in Freeport’s vast Grasberg mine in Papua Province owing to the current row.
Economic nationalists have pushed putting stricter conditions on foreign firms in a bid to reap greater profits, but critics fear the moves could backfire by scaring off investors at a time when policymakers are already struggling to reignite slowing economic growth.
Freeport, which says it has given the government more than US$16.5 billion in taxes and other payments since 1991, has refused to bow to Jakarta’s demands to sign a new deal without additional assurances, stopped work at Grasberg — the world’s second-biggest copper pit — started laying off workers and threatened to sue the government.
“Right now we are at an impasse with the government,” Freeport chief executive Richard Adkerson said in Jakarta last month.
Under the changes to Indonesia’s export ban, miners would be able to export nickel ore and bauxite as well as concentrates of other minerals under certain conditions, instead of having to process them in Indonesia.
For investors who have already plowed money into constructing smelters, the U-turn on the ban is a disaster.
“People who have invested millions of dollars in Indonesia can only pray now that the government will revoke the regulation,” Indonesia’s Processing and Smelting Companies Association executive director Jonatan Handojo said.
Despite the outcry, officials are unrepentant and the finance ministry predicts the reversal could boost government coffers by US$3.12 billion in the next five years.
Even if the government does not hit such an optimistic target, the policy overhaul may still turn out to be a good thing in the long term, Sullivan said.
“Indonesia is clearly being forced to rethink its position regarding resource nationalism and focus more on economic reality,” he said.
BUSINESS UPDATE: The iPhone assembler said operations outlook is expected to show quarter-on-quarter and year-on-year growth for the second quarter Hon Hai Precision Industry Co (鴻海精密) yesterday reported strong growth in sales last month, potentially raising expectations for iPhone sales while artificial intelligence (AI)-related business booms. The company, which assembles the majority of Apple Inc’s smartphones, reported a 19.03 percent rise in monthly sales to NT$510.9 billion (US$15.78 billion), from NT$429.22 billion in the same period last year. On a monthly basis, sales rose 14.16 percent, it said. The company in a statement said that last month’s revenue was a record-breaking April performance. Hon Hai, known also as Foxconn Technology Group (富士康科技集團), assembles most iPhones, but the company is diversifying its business to
Apple Inc has been developing a homegrown chip to run artificial intelligence (AI) tools in data centers, although it is unclear if the semiconductor would ever be deployed, the Wall Street Journal reported on Monday. The effort would build on Apple’s previous efforts to make in-house chips, which run in its iPhones, Macs and other devices, according to the Journal, which cited unidentified people familiar with the matter. The server project is code-named ACDC (Apple Chips in Data Center) within the company, aiming to utilize Apple’s expertise in chip design for the company’s server infrastructure, the newspaper said. While this initiative has been
GlobalWafers Co (環球晶圓), the world’s No. 3 silicon wafer supplier, yesterday said that revenue would rise moderately in the second half of this year, driven primarily by robust demand for advanced wafers used in high-bandwidth memory (HBM) chips, a key component of artificial intelligence (AI) technology. “The first quarter is the lowest point of this cycle. The second half will be better than the first for the whole semiconductor industry and for GlobalWafers,” chairwoman Doris Hsu (徐秀蘭) said during an online investors’ conference. “HBM would definitely be the key growth driver in the second half,” Hsu said. “That is our big hope
The consumer price index (CPI) last month eased to 1.95 percent, below the central bank’s 2 percent target, as food and entertainment cost increases decelerated, helped by stable egg prices, the Directorate-General of Budget, Accounting and Statistics (DGBAS) said yesterday. The slowdown bucked predictions by policymakers and academics that inflationary pressures would build up following double-digit electricity rate hikes on April 1. “The latest CPI data came after the cost of eating out and rent grew moderately amid mixed international raw material prices,” DGBAS official Tsao Chih-hung (曹志弘) told a news conference in Taipei. The central bank in March raised interest rates by