RECENT ECONOMIC REPORTS

Summary: 

 The following are recent developments in Indonesia’s mining sector:

-- Mining investment in Indonesia by foreign-owned firms in 2000 was only fifty percent of the previous year’s level.
-- Despite Energy Ministry efforts, devolution of mining authority may not be delayed.
-- The Ministry of Energy and Mineral Resources reorganized, and, among other changes, merged the Directorate General of Mining into the Directorate General for Geology and Mineral Resources.
-- Java and Bali will again be open to mining investment under terms of the next generation Contract of Work.
-- A new rule allows mining companies in the exploration stage to list on the Surabaya Stock Exchange.
-- A small bomb exploded January 29 in the parking lot of PT Newmont Minahasa Raya’s administrative office in Mataram, Lombok. 
-- PT Freeport Indonesia (PTFI) resumed normal operations in January at its Grasberg open pit mine.
-- Indonesia's tin metal production in 2000 dropped 5.8 percent to 46,432 metric tons (MT) from 49,105 in 1999.
-- Nickel matte production rose 30.4 percent to 59.2 thousand MT in 2000, up from 45.4 thousand MT in 1999.
-- PT Aneka Tambang will construct a third ferronickel smelter, which will raise its annual production capacity to 24,000 MT in 2003.

End summary.

Mining Investment Drops 

General mining investment dropped significantly in 2000 to the lowest level in eight years in nominal dollar terms.  Preliminary figures indicate that mining companies operating under Contracts of Work (COW) spent only US $550 million in 2000, half the US $1.1 billion expended in 1999.  According to the Ministry of Energy and Mineral Resources, 30 mining contractors (14 producing and 16 exploration companies) postponed their investment programs and 18 contracts of works were terminated in 2000.  Some of the uncertainties slowing mining investment included a possible new mining law, implementation of regional autonomy and fiscal decentralization laws passed in 1999, the pending development of the 8th Generation COW, and rising labor and community conflicts affecting mine output.

 Table: Mining Investment under COW’s

Mining Autonomy Sticking to Schedule

The Ministry of Energy and Mineral Resources foresees problems implementing mining provisions of Law 22/1999 on regional autonomy and Law 25/1999 on fiscal decentralization.  The landmark legislation, which took effect on January 1, devolves authority from the central government to cities and county equivalents in a number of areas -- education, family planning, health, roads infrastructure, etc.  The legislation also allows local governments to manage mining, forestry resources, and fishing.  The Ministry attempted to delay devolution of mining authority by five years on the grounds that local governments lack the human resources, infrastructure, and regulatory framework to assume the new responsibility.  The Energy Ministry’s draft presidential decree was returned by the State Secretariat without signature, however, and the Ministry of Home Affairs clarified that mining authority will be transferred to local administrations as planned.

Energy and Mineral Resources Ministry Reorganizes

Energy and Mineral Resources Minister Purnomo Yusgiantoro installed eight senior officials February 7 as part of the Ministry’s reorganization.  The Directorate General for Mining was merged into the Directorate General of Geology and Mineral Resources with Wimpy S. Tjetjep as the new Director General.  Former Mining Director General Surna Tjahja Djajadiningrat will head the ministry’s education and training center, with a major responsibility for developing training programs for local government mining programs under the decentralization program.  Felix Simon Sembiring, formerly in charge of mining investment in the old Directorate General, was promoted to head the Ministry’s research and development center.  Former Director General of Geology and Mineral Resources Surjantoro will become coordinator of the Minister’s expert staff.  Luluk Sumiarso took over as Director General of Electricity and Energy Utilization while his predecessor, Endro Utomo Notodisuryo, will be the Ministry’s Inspector General.  Djoko Darmono and Rachmat Sudibyo were retained as secretary general and Director General for Oil and Gas (MIGAS) respectively.

Java and Bali Islands to be Reopened to Mining

Then-Director General for Mining Surna Tjahja Djajadiningrat recently told Petromindo Journal the eighth generation mining Contract of Work envisions opening Java and Bali islands to future mining investment.  Djajadiningrat noted, however, that mining investment in Java and Bali, closed under the current COW, will be subject to stringent rules on environmental protection.  He foresaw little new mining investment because of the environmental restrictions, limited exploration possibilities, and high land acquisition costs.  The eighth generation COW will also eliminate taxation protections of its predecessors by subjecting mining investment to the prevailing taxation regime.  The eighth generation COW will not, however, come into force until passage of a new mining law (the bill for which will not be submitted during the current Parliamentary session).

Comment: The Ministry of Energy and Mineral Resources is drafting a general mining law to replace Law No. 11/1967.  While details have not been fixed yet, the law aims to update the regulatory framework by recognizing the changing role of government, especially with regard to implementation of regional autonomy and fiscal decentralization; enhance protection of local community interests; and further safeguard the natural environment.  The ministry continues to solicit input and reactions as it fine-tunes this work-in-progress.  The law has not yet been submitted to Parliament.  While the Ministry reorganization is a step toward accommodating the new law’s requirements, continuing uncertainty over decentralization and the administrative burden of its implementation are likely further to delay enactment of the new law.

Mining Firms Eligible for Early Stock Exchange Listing

Indonesia’s Capital Market Supervisory Agency (BAPEPAM) approved changes proposed by the Surabaya Stock Exchange on listing of mining companies, reporting guidelines on mining activities, and classification of mineral resources and reserves.  The new ruling, issued on December 22, 2000, allows mining companies in the exploration stage to list their shares on the Surabaya Stock Exchange.  The government expects the new ruling to help mining companies secure funds to finance mining operations.

Explosion at Newmont Offices in Lombok

A small bomb exploded January 29 in the parking lot of PT Newmont Minahasa Raya’s administrative office in the provincial capital of Mataram, Lombok.  No one was injured in the blast.  The blast, which damaged a wall at the rear of the office compound, follows an October 13 explosion which also caused light damage but no injuries.

Freeport Resumes Full Production

PT Freeport Indonesia (PTFI) resumed normal operations in January at its Grasberg open pit mine in Irian Jaya.  Mining operations had been voluntarily limited to 200,000 metric tons of ore per day after a May 2000 collapse of an overburden stockpile.  The Ministry of Energy and Mineral Resources permitted the mine to resume a 230,000 metric tons per day output after a comprehensive study conducted by PTFI and a team led by experts from the Bandung Institute of Technology.  Placement of overburden on the Wanagon overburden stockpile also resumed.  Meanwhile, U.S. parent company Freeport-McMoran Copper and Gold announced that PTFI’s fourth quarter 2000 production would exceed 500 million pounds of copper and 875,000 ounces of gold, bringing 2000 total production to 1.6 billion pounds of copper and 2.3 million ounces of gold.  PTFI also sold more than 430 million pounds of copper in the fourth quarter, a new record for quarterly copper sales.

Tin Production and Exports dropped in 2000

According to preliminary figures from the Ministry of Energy and Mineral Resources, Indonesia's tin metal production in 2000 dropped 5.8 percent to 46,432 MT from 49,105 MT 1999, while exports declined 10 percent to 42,935 MT from 47,664 MT in 1999.  Tin exports earned US $237.1 million in 2000, down 7 percent from US $255 million in 1999.  Export earnings fell despite a high world price for tin (averaging $5,522 per MT in 2000 versus $5,350 in 1999).  PT Timah reported that the decline in production partly resulted from community conflicts in several mining sites.  PT Timah lowered its production target to 35,000 MT in 2000 in anticipation of declining tin reserves, estimated to last only seven years at current production rates.

Table: Tin Statistics

Nickel Matte Production Increased In 2000

Nickel matte production rose 30.4 percent to 59.2 thousand MT in 2000, up from 45.4 thousand MT in 1999.  PT Inco, Indonesia’s sole nickel matte producer, increased production from its US $650 expansion project completed in 1999.  Export volumes also increased to 51.9 thousand MT from 1999’s quantity of 45.1 thousand MT.  The production increase, combined with higher nickel prices, drove nickel matte export earnings to $401.6 million in 2000 from $209.4 million in 1999.  Export prices of nickel matte averaged US $6,744/MT (US $3.06/lb) in 2000 versus US $4,588/MT (US $2.08/lb) in 1999.  Inco achieved a net profit of US $80.9 million in 2000, almost quadruple 1999 earnings of US $21.3 million, as a result of rising nickel prices, increased exports and lower production costs. 

PT. Aneka Tambang Increased Ferronickel Production

PT Aneka Tambang, a publicly traded company partly owned by the government, increased ferronickel output from its two-unit ferronickel smelting plant in Pomalaa, southeast Sulawesi, to 7,479 MT of nickel content in the first nine months of 2000.  This was a 6.3 percent increase from the 7,039 MT for the same period of 1999.  The increase resulted from higher worldwide demand for the product aided by low downtimes at its smelter operation.  Aneka Tambang shipped 6,715 MT of nickel valued at US $60 million in January-September 2000.  Japan and Europe are the major markets for Indonesia's ferronickel production.

German Company To Build Nickel Smelter

PT Aneka Tambang selected Tessag Industries-Anlagen GmbH as its contractor to finance and build a new ferronickel smelter unit III (FeNi III) in Pomalaa to join two others.  Construction of the 13,000 ton per year facility is expected to start in the first half of 2001 and is scheduled to start production just over two years later.  Once the new smelter comes on stream, PT Aneka Tambang’s annual ferronickel production capacity will be 24,000 MT.  Aneka Tambang anticipates that the estimated US $220 million project will be financed 70 percent by loans and 30 percent by equity, with some of the financing expected from Germany's IKB Deutsche Industriebank AG.  PT Aneka Tambang also plans to construct a 6X12 MW diesel power plant to supply power to FeNi III.  A joint venture among U.S. firm Nations Energy, German MAN, and local partner PT Ibra Tata Perkasa will carry out construction of the US $120 million power plant.

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