One of the weak points of Indonesia, one that seriously hurts the country’s investment climate as well as foreign confidence, is regulatory uncertainty. In 2009 the government of Indonesia introduced Law No. 4/2009 on Mineral and Coal Mining (New Mining Law) which caused a shock in Indonesia’s natural resources sector as it includes several new policies that make investors think twice before investing in Indonesia as the consequences of these new policies are far-reaching. However, a possible new amendment to the law causes new concern.

One important new policy included in the 2009 New Mining Law is the accelerated share divestment requirement meaning that foreign shareholders in local mining companies (holding an IUP permit) are required to divest their shares within ten years from the start of commercial production in order to achieve majority Indonesian ownership in the mining company. This rule makes investing in Indonesia’s mining sector considerably less lucrative.

Secondly, the New Mining Law includes the ban of exports of unprocessed minerals, instead requiring mining companies to process and refine their mining output domestically (before export is allowed). Although the mineral ore export ban has been in effect since January 2014, the Indonesian government has given some exemptions to certain companies (under strict conditions) as domestic smelting capacity was not sufficient thus significantly disturbing the mining sector and weakening Indonesia’s export performance.

Reluctantly, miners such as Freeport Indonesia and Newmont Nusa Tenggara had to face the new reality and started to make plans for the construction of smelting facilities. At that stage Indonesian authorities had not set requirements concerning the exact location of these smelting facilities. The new law required miners to refine mineral output domestically i.e. in Indonesia. However, a new bill, an amendment to the Mining Law, set for deliberation by Indonesia’s House of Representatives (DPR) will require these smelting facilities to be established in the proximity of the mine from which mineral ore is extracted, thus not allowing separate locations for the mine and smelter (hence integrating the upstream and downstream branches). Through this amendment the DPR aims to boost economic development in mining regions and curtail the dominance of Java regarding the location of smelting facilities (due to better infrastructure miners tend to select Java as location for smelters).

Source: Indonesia-Investments - see full article