The Minister for Energy and Mineral resources, Ignasius Jonan, delivered a key note address at the Indonesia Miner conference in Jakarta on the 11 April 2018. He did not stick to the safe formula to talk against the 30 prepared slides, but spoke in a more direct, to the heart approach about some key aspects in todays mining industry. Below are some quick notes (without recording). I apologize if I miss understood the Minister, and have added some short personal notes. Some key points included; -
- The Ministers interpretation of the Constitution is that minerals are given by God and it is the Governments role to manage these resources for the benefit of the people. This outlook is now to influence policies whereby coal and minerals are not just commodities, but now more importantly looked upon as “Natural resources for use as capital for Indonesia’s development”. The minerals and coal are not there simply to generate royalty, but to act in a broader manner as capital for development.
- The Constitution clearly sets out the minerals and coal are owned by the State, and the Minister sees the companies as a method [tool] for the State to develop such minerals & coal. The State wants such companies to act with sound business practices in a three-way development program between the Company (contractor), State and involved people.
- Coal for electricity is an important part of Indonesia’s development, wherein the Government has decided to impose a ceiling price for sales to PLN to make electricity. The PLN coal price cap will stay unchanged, and in place until at least the end of 2019. The Minister said firmly he will not accept approaches to change this policy or price.
- The Minister is anxious that Indonesian consumption of electricity by the Indonesian people will double in the next 10 years, or in a shorter time frame. Coal will remain an important component of fuel for power generation. The Minister repeated the Government policy of no further new coal power statins for Java & Bali, and the Governments commitment to the Paris climate accord will be a driver for other forms of power. Coal for power will be withdrawn from planned programs where the shipment of coal is over long distances (East Indonesia – Maluku etc), principally to reduce power production costs. Coal for mine mouth power stations in Sumatra, Kalimantan and coal for Sulawesi will be allowed.
- The government achieved 119% of its 2017 royalty target from mining. This overall sum is not so big for the national income, and there is no real benefit for the government to increase this royalty factor, so royalty is not planned to be increased. However, there are plans to use the resources as capital for development.
- The Minister will focus on environment issues and will get tough on miners who are not environment conscious. He urged companies to review their approach to environment management. The Minister encouraged companies to talk to the Dir Jen of Minerals & coal on environment issues and urged to follow regulations.
- New investment opportunities are to be opened up soon with the introduction of the new auctioning of some tenements. These will include coal, nickel (in Sulawesi), gold, copper and iron. The auction process will be conducted “as open as we can”. Some areas will be for SOE’s and BUMD that can be open for joint venture with private parties. The rest will be open to the public.
- The Minister is hopeful that further value adding for the coal industry will see companies more interested in the development of the CBM industry. He is encouraged by China’s development in this industry. [personal note – China’s experimental coal value adding program has not been shown to be commercially viable for China or Indonesia].
- The Minister feels ease of doing business can be supported by further stability in the Mining Law. This law has been in for less than 10 years, and the Minister feels it is NOT necessary to amend the law, but to manage the industry through easier to develop ministerial regulations etc. The Ministry has reduced the number of regulations and permits with a final plan of 4 regulations and 22 permits that emphasize the Constitution, safety and management for public companies, with the rest up to the business players.
- The outlook on the electrical industry is to increase the electrification ratio to 97% by end 2019, but the Minister is more hopeful he can achieve 99.9%. The spirit of providing electricity is that ‘no one is left behind”. East Indonesia has some areas with electrification ratio of only 60%, and the Minister would like these areas to achieve 99% in 2 years. Affordability is a key issue, with some remote villages not even having $10/month to spend on electricity. The Minister reiterated he will not change the $70/ton celling for PLN coal for the remainder of his appointed period till end 2019 – don’t even try to seek a change.
- Indonesia needs investment, and for business to drive employment. It is not enough for coal companies to just do CSR, but should also emphasize local employment, and improve the quality of manpower.
The Minister thanked the audience of more than 100 and left the Director General Mr Bambang to answer questions. Most of the answers were restricted to Ministerial standard answers, and issues outside this narrow scope were not able to answered.
Some points of clarification included;
- The proposed 16 tenements for new auction include 6 Nickel areas from Sulawesi that are relinquished areas from Vale. These will be set out for IUPK, and so available for SOE’s, BUMN’s and BUMD’s, and if then not taken up, then open to public. The other 10 tenements are from IUP areas.
- Ministry is not looking at providing further incentives to compensate coal suppliers to PLN, other than option to allow a further 10% coal production target. There are some suggestions by industry to reconsider the earlier process of DMO transfer quota. This will be further discussed with the big coal players and coal association.
- There was a call from industry for the ESDM to consider a special section to facilitate more direct interactions for miners to raise their issues.
- There was a call from industry to encourage exploration investment. The Mines Department indicated such encouragement was to allow one company to hold more than one concession (same / different commodity) in one regency / Province, and to hold larger areas. Discussion indicated the Mines Department is still trying to convince the Forestry Ministry that exploration is a valid activity in a “Operation & Production” class of tenement.
- The government is seeking to encourage development of CBM and other coal upgrading. But the regulations are not fully developed in these areas. The Government has 2 pilot projects (S. Sumatra / E .Kal) in active oil & gas areas. Once the studies of these test projects are completed, then the government will consider developing policies these industries. [Personal note – if the CBM projects are not viable, then the studies may never be completed!].
The large number of sponsors for this two-day conference reflects the upturn in optimism in some sectors of the Indonesian mining sector.
By Ian Wollff
Principal Geologist, Independent Director. Independent Consultant
Originally Published in Linkedin by Ian Wollff.
Disclaimer: The views and opinions expressed in this article are of the author and do not necessarily reflect or the position of COALspot.com
