Economic Impact of the Indonesian Mineral Law

scotch Impact of the Indonesian mineral faithfulnessAbstractRaw mineral ores is one of excellence natural yield in Indonesia. For many years, the mineral mine high society in Indonesia nates trade raw mineral ores directly everyplace the world. A broad tonic archeological site law mandates the dig company to serve fountainhead the ores municipalally then(prenominal) trade its product. The political relation purpose is to increase honour added of the mineral ores and creates domestic perseverance bodily function. The problem arises since there are tho few smelters which speedy to process the mineral ores. In short run, this new law has a negative impact to mineral export activity and gross domestic product fruit pay off slower.1 IntroductionIndonesia is one of rich countries with abundant mineral imagination. Bauxite, copper, gold, nickel and atomic number 50 are Indonesias excellence mineral resource export product. This mineral ores are spread over in Indone sia region, largely in Kalimantan Island, Papua Island, Sumatra Island and Sulawesi Island.The latest report of U.S. Geological Survey (USGS) mentions the estimation of bauxite militia in Indonesia is 1,000,000 metric ton, ranked Indonesia in 6th of biggest bauxite reserves in the world. Meanwhile the reserve of Indonesias copper is 28,000 metric ton, the 8th largest in the world. Gold reserve is 3,000 metric ton, placed in 5th largest reserves in the world. Other Indonesia resources, nickel and tin are estimated 3,900,000 and 800,000 metric ton reserved beneath the earth. Indonesias nickel is 6th largest deposit and tin reserve ranked this country at 2nd position in the world (USGS, 2014).Figure 1.Production per year its reserves (bauxite, nickel, tin) (source USGS, 2014)Figure 2.Production per year its reserves (copper, gold) (source USGS, 2014)These generous resources are being used by Indonesian government to add national income by export the mineral ores to foreign country. Since 1967, Indonesian government attracts foreign company to invest in digging arena. To frustrate the Foreign Direct Investment (FDI) in excavation sector, the government had been issued some(prenominal) mine law which has revised over the time. Since then, the mining sector is become favorite among foreign investor (Bhasin Venkataramany, 2007).These mining activities contri neverthelesse to Indonesias Gross domestic help Product (GDP). Together with oil gas and quarrying, mining sector accounted with 7% in real GDP at 2012 (at constant prices). Even though this sector does not contribute more in contrary with some other natural resource e.g. agriculture, livestock, forestry and fishery with 12% contribution in GDP, mineral sector still contribute USD 61.3 billion in Indonesias entireness GDP of USD 875.72 billionFigure 3. Indonesia GDP 2012 at constant prices (source primaeval office staff of Statistics)2 Indonesia New Mining LawAfter forbiddengo al approximately f our years discussion in the House of Representatives, on 16th December of 2008 the parliament members agreed a new mining law, replacing old mining law which had been applied almost 40 years. This new mining law officially sign-language(a) by the hot seat on January 2009 and the law is known as Law No.4/2009 Concerning mineral and blacken Mining (Syahrir, Bongaerts, Drebenstedt, 2013).The governments purpose to implement this new mining law is not only regulates the contract term for foreign investor company and obligate them to have a mining license, but as well break in environment and increasing added value of mineral resources (Syahrir et al., 2013).In order to protect the environment area which affected by mining operation, the new mining law withal regulate the mining company to keep the environment and hear them to fulfill the minimum requirement of environmental standard available based on their level of license. Beside the environment purpose, the new law also re gulates the company to undertake domestic processing. The Law no.4/ 2009, Chapter XIII, article 102 and 103 stated denomination 102The holders of Mining Business evidence (IUP) and redundant Mining Business License (IUPK) shall increase the added value of mineral and/or coal resources in carrying out mining, processing and purification activities as well as in do use mineral and coal.Article 103The holders of Mining Business License (IUP) and Special Mining Business License (IUPK) for operational intersection shall process and repair output of the domestic mining.The holders of IUP and IUPK as referred to in separate (1) can process and purify the mining output from others holders of IUP and IUPK.Further provisions on the extremity to increase the added value as referred to in Article 102 as well as on the processing and purification as referred to in paragraph (2) are to be provided for in government linguistic rule.Furthermore, the Ministry of Energy and Mineral option ( MoEMR) also issued a regulation no.34/2009 in order to control exertion and export of mining product. This is reflected from article 5 MoEMR no.34/2009 which statedThe Mining fraternity as cited in Article 3 paragraph (1) shall be allowed to export the mineral or coal as long as it is clear of fulfilling a borderline Percentage of Mineral Sale or Minimal Percentage of Coal Sale.This policy issued as government want to ensure the supply for increasing domestic demand. With this Ministry Regulation, the company may export their production, but is encouraged to fulfill domestic demand which calculated by interior(prenominal) Market Obligation (DMO) (PricewaterhouseCoopers, 2012).Despite this new mining law was sign(a) on five years ago in 2009 the effect impart be enforced on 12 January 2014. Therefore, after 12 January 2014 the mining company cannot export mineral unprocessed. This situation is totally different when in the old mining rules regime1, the mining company still all owed to shipping the mineral ores directly to their buyer industrial countries, such as China, Japan, EU countries and unify States.At that time the mineral ores are exported and then processed by the buyer in order to add the value of ores product. Later, Indonesias manufacture sector will import the metal product to supply their production (Syahrir et al., 2013). For example Indonesia shipyard industries have to import steel from China where the Chinas steel plant produced steel from Indonesias iron ores.Based on this situation, the idea of adding value to mineral resource in Indonesia came to surface. And later the chairperson of Indonesia Republic signed it as the new mining law. This law and regulation will close the mining companys curtain to export the mineral resources directly to the buyer unless the mineral is processed domestically.3 The insufficiency Preparation of Mineral Refinery SectorAfter the new law has been signed on December 2009, the mineral resources have t o be processed or extracted in domestic smelter or extractor. In the other pass around there are only three available mining refinery in Indonesia by 2012 PT Aneka Tamforbiddingg, PT Indonesia Asahan Aluminium and PT Smelting (Hogan Lovells, 2012). After other regulation MoEMR reg. no.7/2012 come into force to mandate the mining companies to increasing the value through mineral processing, some mining company are mean to invest smelter in Indonesia which are PT Vale Indonesia, PT Freeport Indonesia, PT Newmont Nusa Tenggara, PT Weda Bay Nickel, PT Jogja Magasa Iron and PT Agincourt Resources.Those mining companies should constitute mining refinery in order to comply the law as yet though they are facing uncertainty condition to build a smelter caused by unrealistic deadlines and unclear concept of Contract of flirt (CoW) (McBeth, 2014).Indonesias inconsistence policy and high risk investment made the companies considering build a smelter are decreasing (Jensen Burton, 2014). This unprepared mineral refinery industry to anticipate the new mining law is being unhealthy to Indonesian mining sector as their ore cannot be shipped.Fortunately, the government already standard several refinery plant proposals coming from domestic investor and foreign investor. However only three are expected to shekels the project this year with takes at least 5 years to complete (Jensen Burton, 2014).4 The Effect of Mineral LawAs mentioned above, there is some increasing amount of mineral ores in mining companies stock pile as it cannot be shipped over the world. After the new mining law has been applied, the export activity oddly in mining sector is decrease which can be shown by following figureFigure 4.Export of Mineral Ores (source Ministry of Trade)The figures describing the export of mineral ores in particular tin, copper, nickel and aluminum. After the new law has been signed, the mining companies start to advance the production in order to add extra revenue forw ards they could not export the ores unprocessed.When the MoEMR no.7/2012 released to mandate them to increasing mineral value added, they start to slow down the production as they cannot export directly to their buyer. sidestep 1.GDP growth stringly at constant price (source Central Bureau of Statistics)This condition also affecting Indonesias GDP growth as the mineral trade also contribute to Indonesia GDP as shown in previous table. From nine sectors of GDP contributor, only mining and quarry sector which decrease consecutively in 1st posterior and 2nd quarter of 2014. Throughout the first quarter of this year, the value-added mining and quarrying decreased round 0.38% when compared with last year in the same quarter. If calculated based on constant 2000 prices, the value added produced by the sector in the first quarter of 2014 was only Rp 48.2 trillion. The figure is lower than the first quarter of 2013 amounted to Rp 48.4 trillion and quartern quarter 2013 amounted to Rp 50 trillion (Central Bureau of Statistics, 2014).However, in the trade, export of coal only US $ 5.63 billion, down 13.29% compared to the first quarter of 2013 amounted to US $ 6.49 billion. In fact, coal became the biggest contributor to non-oil exports. So that the growth of exports to the first quarter of 2014 GDP is minus 0.78% (Central Bureau of Statistics, 2014)5 ConclusionIn the short run, the resultant role of new mining law is negative to mining trade activity and to national income growth. In the long run after the smelter built, the mining sector will increase again and the domestic industry also growth since the mineral ores should be processed domestically. As the result, in the long term this law will lead greater national income growth. books ReferencesBhasin, B., Venkataramany, S. (2007). Mining Law and Policy Replacing the Contract of manoeuver governing body in Indonesia Mining Law and Policy Replacing the Contract of Work System in Indonesia, 116.Central Bur eau of Statistics. (2014). Pertumbuhan Ekonomi Indonesia Triwulan II-2014, (63).Gandataruna, K., Haymon, K. (2011). A dream Denied? Mining Legislation and The Constitution in Indonesia. Bulletin of Indonesian Economic Studies, 47(2), 221231. doi10.1080/00074918.2011.585951Hogan Lovells. (2012). Investment in Indonesia s Mineral Refining and process Sector Value-added Regulations and Industrial Policy, (July).Jensen, F., Burton, M. (2014). As smelters weigh cost, Indonesias ore export ban may backfire. Retrieved December 11, 2014, from http//www.reuters.com/article/2014/01/27/indonesia-minerals-smelters-idUSL3N0KY20P20140127McBeth, J. (2014). How to kill an industry in Indonesia. Retrieved December 11, 2014, from http//www.atimes.com/atimes/Southeast_Asia/SEA-01-100214.htmlPricewaterhouseCoopers. (2012). Mining in Indonesia Investment and Taxation Guide, 4th Editio(April).Syahrir, R., Bongaerts, J. C., Drebenstedt, C. (2013). The forthcoming of Indonesian Mining Activities after the Implementation of Law Number 4 of 2009 Concerning Mineral and Coal Mining ( The New Mining Law ). IMRE Journal, 7(4).USGS. (2014). Mineral Commodity Summaries 2014.1 The mining predecessor law no.11/1967 used over than 40 years in Indonesia mining industry. At that time, the mining company which most of them is foreign investor act as contractor under government and trussed with Contract of Work (CoW) agreement (Gandataruna Haymon, 2011)