Snapshot of the Indonesian Mining Industry.
In the first 5-year term of President Jokowi, the Indonesian Mines Department has been successful in cleaning up the administration of the mineral and coal industries (Minerba). Of particular note is the Clean & Clear program that brought order into the Districts issuance and management of the smaller IUP tenements. Other notable progress was made in setting up a digital registration of companies (MOMS) that includes a OneMap platform with displays geology, tenements, forestry etc. This One Map system is key to reducing overlap issues between several ministries. The ESDM web site has been revised, and allows for easy access to the many publications on the performance of the Mines Department, organization structure and more. There are some excellent regulations to improve the level of professional reporting, and good mining practices. Most recently, at the beginning of the second 5-year presidential term, Mines Department is continuing this trend to bring order and computing technology in to the Mineral & Coal division (Minerba), with the launching of additional units to its MOMS digital system. These new systems are to allow for registered companies to record their commodity sales (MVP), monitor exploration (EMS) and also provides an exploration data warehouse (EDW). These systems will allow the Mines Department to monitor the overall health of the industry, as well as tightening up on improper trading etc.
Under President Jokowi, the politics of the Mines Department has seen a further shift to the left, with some expiring oil & gas blocks turned over to Pertamina, and Freeport shares purchased by the Government through its new super SOE mining company. The coal industry has been called upon to support other segments of the Indonesian industry. This policy includes the Domestic Market Obligation (DMO) for coal companies to sell 25% of their produce at a discount to the state power company, and other Indonesian enterprises. The coal exporters are to use local insurance companies, and in mid-2020 are to use Indonesian ships for coal exports. There are some pragmatic elements to this shift to the left, with the expansion of coal exports to support the balance of payment. In the mineral sector, the miners are no longer free to export their produce, but are to build smelters, or sell to local smelters as part of a Value Adding strategy. This value adding program is to support development within Indonesia. The nickel industry is an outstanding success story, but other commodities are struggling, or not able to develop as they cannot justify this smelter option. The Mines Department is still looking into how the coal industry can add further value.
A period of low commodity prices saw the miners enforce efficiency measures. This has been followed with consultants, contractors and owners committing significantly to new technology. Larger and more automated trucks, sophisticated overburden blasting etc, have delivered incredible productivity increases, resulting in lower cost per ton of mining. Many of Indonesia’s mines are now world class operations.
Brownfield exploration, particularly in the gold and nickel sectors has seen strong growth. Geological consulting companies are trickling back to Indonesia, being busy with brownfield reserve estimation, along with supporting merger and acquisition of mining companies. In the minerals sector, the exploration now includes deeper and undercover targets. However, the striking failure is the ongoing lack of greenfield exploration across all sectors (oil & gas, mineral and coal). The media and Government are very much aware of this serious industry failing, with submissions being prepared at the end of 2019 for the new Commission 7 (parliament) to consider on how to improve the greenfield exploration sector.
Indonesia’s geology and mining professional associations are well supported by enthusiastic and capable volunteers that reach out across the many remote island capitals to provide training in professional conduct, and socialization of new technologies. Several NGO’s continue to function as a popular conscience to the mining industry, while the previously disruptive environmental NGO’s are more sedate. Miners are very careful in dealings with the more sophisticated local village communities, while land compensation has skyrocketed.
The major issues to be resolved in the coming years is the future of the Coal Contracts of Work (PKP2B), whether to extend them (and in what format), or effectively turn them over to the SOE of Bukit Asam. This decision should be undertaken soon, such that the existing giant coal mining companies can manage their businesses accordingly. The other urgent issue is to find a way to incentivize greenfield exploration, in all sectors (oil & gas, minerals & coal). The longer-term major issue confronting the politicians is whether to revise the basic mining law, or continue to manage through issuing new regulations. Some long-term issues for the mining industry, such as dealing with forestry, remain. New issues of an oversupply (and sometimes poor quality) of graduates in geology and mining are challenges for the industry. Indonesia’s growing significant position in the global trading of commodities is bringing new challenges.