Smelter Companies Lament Negative Impact of Government Regulation 1/2017

Hukum Dan Undang Undang (Jakarta) ~ Government policy has previously been implemented in a reasonably relaxed manner as regards the export of concentrates and raw materials, specifically Government Regulation No. 1 of 2017 (PP 1/2017) and Ministry of Energy and Mineral Resources Regulations No. 5 of 2017 and No. 6 of 2017. 

However, several industries which have aimed to be consistent in their implementation of current downstream mineral policy through the building of smelters are beginning to be affected by this requirement. Indeed, a number of smelters are now threatened with bankruptcy and investment plans for the future are looking uncertain due to significant policy changes which are favorable to certain parties at the expense of others.

Smelter Companies Lament Negative Impact of Government Regulation 1/2017
Marwan Batubara, Executive Director of Indonesia Resources Studies/hukumonline, Photo by: DAN
Marwan Batubara, Executive Director of Indonesia Resources Studies (IRESS), has asserted that the relaxation of concentrate-export policy has ended up sending out a negative signal as regards investment in smelter development and Indonesia’s investment climate in general.

According to Mr. Batubara, the government has been proactive in terms of attempting to attract investors by streamlining the licensing system via Indonesia Investment Coordinating Board. However, at the same time, the government has also introduced legal uncertainty through the issuance of PP 1/2017.

"It is not surprising that interest in smelter investment has been diminishing of late," Mr. Batubara told Hukumonline recently.

In addition, Mr. Batubara explained that the relaxation in policy represented by the issuance of PP 1/2017 shows that the government has also betrayed its commitments to contractors who have invested in smelter development over the course of past two to three years. The current relaxation in policy has thus redrawn the map as regards volumes of concentrate import-export activities and the lowering of concentrate commodity prices. The policy is also seen as a source of interference as regards the appropriateness of various smelter investments.

In fact, only five smelters were built from a total of 12 bauxite/nickel smelters which were originally planned for 2015, while only two smelters were constructed out of four bauxite/nickel smelters which were originally planned for 2016.

According to data from IRESS, 11 smelting companies have now ceased operational activities due to the current relaxation in policy, namely PT Karyatama Konawe Utara, PT Macika Mineral Industri, PT Bintang Smelter Indonesia, PT Huadi Nickel, PT Titan Mineral, PT COR Industri, PT Megah Surya, PT Blackspace, PT Wan Xiang, PT Jinchuan and PT Transon.

Moreover, a further 12 smelting companies have suffered losses as a result of price drops, namely PT Fajar Bhakti, PT Kinlin Nickel, PT Century, PT Cahaya Modern, PT Gebe Industri, PT Tsingshan (SMI), PT Guang Ching, PT Cahaya Modem, PT Heng Tai Yuan, PT Virtue Dragon, PT Indoferro and PT Vale lndonesia Tbk.

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Finally, Mr. Batubara has asserted that the relaxation in provisions relating to downstream business activities, as implemented under the Minerals and Coal-Mining Law, clearly reduces the country’s ability to bolster its economy and financial prospects, including its Gross Domestic Product (GDP), Gross Regional Domestic Product (GRDP), tax revenues, foreign investment, economic turnover and public revenue. The relaxation policy will also hamper the domestic supply of industrial raw materials, resulting in depletion of the country’s foreign exchange levels, as they relate to import activities.

Jonatan Handojo, Vice Chairman of the Association of Indonesian Processing and Refining Companies (Asosiasi Perusahaan Industri Pengolahandan Pemurnian Indonesia - AP3I) claimed recently that only two out of a total of 25 smelting companies were still currently operating well and that both of these smelters were located in Morowali. So quoted from Hukumonline. (***)

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