Govt may use state budget for smelter development

JAKARTA. As the clock counts down to the 2014 deadline for a full ban on exports of unprocessed minerals, the government plans to allot funds from the state budget to back the construction of local smelters, an official says.

The Energy and Mineral Resources Ministry’s director general for coal and minerals, Thamrin Sihite, said the government might need to use the state budget to finance the construction of copper smelters as no investor had so far shown commitment.

“Our ministry thinks this will happen if there is no private player who wants to enter the project [to build copper smelters]. However, of course, we first need to discuss this with the Finance Ministry,” he told The Jakarta Post over the weekend.  

Indonesia’s sole copper smelter is operated by PT Smelting Gresik, which currently operates a large smelting plant in Gresik, East Java.

The plant processes copper ore from PT Newmont Nusa Tenggara (NNT), a subsidiary of the United States-based Newmont Corporation, and Freeport Indonesia, a subsidiary of Freeport McMoran Copper & Gold.

Last year, Indonesia produced 804,000 tons of copper ore, an increase from the 618,000 tons the country produced in 2011. Most of the ore is exported in the form of unprocessed copper.

Investors have been reluctant to build copper smelters in Indonesia as they claimed they had yet to receive certainty over ore supplies for the smelting plants, Thamrin said.

“Investors from Russia, who plan to build a copper smelter in collaboration with local firm PT Nusantara Smelting, have asked the government to give assurance over the supplies,” he said.

With that, the government asked giant firms NNT and Freeport to ensure the supply of copper ore for other local smelters in addition to that in Gresik, according to the official.

Thamrin added that the government might allot funds from the state budget to increase the capacity of the Smelting Gresik plant.

Indonesian Mining Association (IMA) executive director Syahrir Abubakar welcomed the government’s plan to allot state budget funds to assist local smelter developments, adding that it would make constructing smelting plants attractive for investors.

“However, the government must guarantee those investors sufficient supplies to ensure the operation of the smelting plants,” he said.

Southeast Asia’s largest economy will ban the export of mineral ore starting in 2014 as part of its 2009 Mining Law. Miners will have to either build their own smelters, form consortia to do so or, in the case of smaller firms, sell their unprocessed ore to local smelters.

The government has implemented several export restrictions leading up to 2014, much to the chagrin of several local players who insist that they need more time to fully commit to the development of local smelters.

The government has received 158 proposals so far from companies expressing the commitment to build local smelting plants. But only a few of them are serious with their plans.

Local firm PT Sebuku Iron Lateritic Ores, for example, has begun construction of an iron ore smelter in South Kalimantan.

Other firms, such as PT Meratus Jaya Iron and Steel, a joint venture between publicly listed PT Krakatau Steel and Antam, is expected to begin work on its own smelter in 2014. (Amahl S. Azwar/ The Jakarta Post)

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