Mining Industry

An Expert's View about Sales in Indonesia

Last updated: 23 Feb 2011

Summary

Indonesia is a valuable market for U.S. suppliers of mining equipment, technology, and services. The country is the leading exporter of thermal coal, and ranks second in the production of tin, third in copper and fourth in nickel. In 2009, mining contributed Rp. 51.5 trillion to the Indonesia’s state revenues, increased from Rp. 42.6 trillion in 2008. Investment in the industry reached US$1.81 billion, increased slightly from US$ 1.654 billion in 2008. Although several regulatory, environmental and social issues exist; industry experts believe that prospects for the mining industry in Indonesia are promising.

The market for mining equipment and services is predicted to increase by 15 – 20 % in the next two years. There are business opportunities for manufacturers and suppliers of coal mining equipment and associated products and services. U.S. suppliers are encouraged to seek local representation and have a joint operation with a local company, which can provide after-market support to their clientele and meet with local content requirements.

Market Demand

The energy and mineral resources industry remains as the main activator of the country’s economic engine wheels. The sector demonstrated a strong performance during the past decade. In 2009, the industry contributed more than 33 percent of Indonesia’s state revenue, which was Rp. 235 trillion or about US$ 26 billion. Although most of the revenue (Rp. 182 trillion) was generated from oil and gas, the mineral and coal sector contributed Rp. 51.5 trillion in 2009, an increased from Rp. 42.6 trillion in 2008.

In recent years, the mining industry has contributed about four percent to the total Indonesian GDP. The GOI enacted a new Mining Law on January 12, 2009. This law is expected to provide greater certainty for investment in the industry. Under Law No. 4/2009, a company will be given a mining business license (IUP) instead of the previous Contract of Work. All new mining licenses will be granted
through a tender. Although the tender process will slow down the process for developing new mining projects, it will ensure that brokers are not allowed to qualify for a mining license. Unlike the previous mining law, the new law allows foreign investors to hold up to 100% of the shares of an Indonesian mining company. However, under Government Regulation No. 23/2010, the foreign shareholders of an IUP must divest 20% of their shares after five years of production. The central government and local governments have the first priority to purchase these shares.

The maximum area for a mining permit has been increased significantly. For coal mining exploration, the maximum allowable area is 50,000 ha, and 15,000 ha for coal mining production. For mineral mining the maximum allowable area for exploration is 100.000 ha and 25.000 ha for production. A mining concession will be given for 20 years, which can be extended by another 10 years, with a maximum of
two extensions.

Government Regulation No. 28/2010 concerning mineral and coal mining services states that IUP holders can no longer contract out all activities, and cannot use an affiliated mining company for support service activity unless ministerial approval has been obtained. The law also prohibits mining companies from exporting unprocessed ore, and states that mining companies must refine the mined product in Indonesia starting five years after the enactment of the new law (2014).
 

 

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Posted: 30 January 2011, last updated 23 February 2011

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