Mines & Money Hong Kong Indonesia Chat

Tuesday, 24 March, 2015

Medco start the second session of Monday morning, Mines & Money 2015, with the joys of South East Asian coal-fire power.  The Medco presenter pops up an interesting map of ‘dry season’ crises for power across the region establishing that electricity is a good thing.

The Medco presenter then talks about the Indonesian two tier permitting process via central and central/provincial government. We get little idea of how they find the regime, although I get the feeling ‘very good’ is the stock descriptor ascribed by Medco to many things, activities, situations and people.

The presentation then sights a chart of unknown provenance that, possibly surprisingly given earlier presentations, shows Indonesia to be the regions (could be worlds) leading investment destination, although to be fair Medco does point out the country has one of the worlds worst corruptions ratings and that remains a key issue to cleaned up.

Medco guy suddenly gets interesting on a range of topics including licensing, corruption and investment criteria. In short Indonesia appears to be streamlining its licensing process significantly by firstly cutting the sheer number of bits of paper needed to work and also by trying to synchronize central and regional governments. Illegal mining is apparently being addressed (mostly the ripping out of near surface raw materials to be barged) and, as with other commodities, Indonesia insists on beneficiation processes being implemented for export coal. This facet of Indonesian policy for export is very interesting: in addition to boring old tax regimes ‘miners’ (who are not often just miners in the case of PRC operators in Indonesia) are required to invest in down stream beneficiation processes in country. In other words; Indonesia tries to ensure new industries are created on the back of basic raw materials extraction- but more of that next...

So onward to the next panel of the morning that beautifully dove tails into an Indonesia discussion- its all planned you see. Generally the panel seems positive about Indonesia following the inconvenient occurrence of democracy in action last year. Now following the ‘hangover’ of elections (why are people so cynical about the global investment community?) the Government has now openly stated it is looking for outside investment and being friendly. Flexibility is being shown with overseas companies with existing production operations, allowing them to export raw material while building the necessary (or is it..) smelter under law. The panels view on the dynamics of Indonesian politics is interesting, although worth noting that the majority of worthies are unlikely to be Indonesian citizens. While the administration is  seen as pro-investment, parliament remains very nationalistic. Also, the administration can work all they like to use the degree of flexibility the actual mining laws have to promote cross border investment but in practice the bureaucrats remain the same, a log jam of people who deal with the issuing of bits of paper on a day to day basis.

An interesting couple of points brought up by the panel were: Is building new beneficiation plants actually- a. possible b. desirable.

Is there enough supporting infrastructure in terms of power, transport etc in place to support new processors?  As the law actually only requires that there is benefit from mining for the people of Indonesia is not taxed profit the best deliverer of benefit for peopel? What we might say as CSR21 is that it is more difficult to embezzle a job in a smelter than tax $ in a bank account. 

The answer, from the panel of mostly mining related foreigners, appears to be respectively: a. no and b. yes. However in the words of a female witness involved in a famous scandal ridden court case in Britain: “Well he would say they wouldn’t he?”

Forestry law is also thrown into the mix regarding mine development, the forgotten license of the “should” rather than the “how” facing mining companies looking to develop. Apparently the new Indonesian government will encourage “alternative ways to exploit areas with forestry issues”. Hmm, we shall endeavor to find out the details of what this might mean over the following days.

Asked if the Indonesia export ban on Nickel has had any effect on prices the Panel provides an awful lot of explanation about why it hasn’t and a belief that a price ‘spike’ is around the corner as Chinese stock piles are used up. What would Ned from Bloomberg say about that we wonder? (see session 1 article)

Perhaps the take away for CSR21 from the Panel is; “Indonesia has world-class deposits but what is needed for companies is: Indonesian support at all levels”. There is also a late mention of the Indonesian governments response to prevent tax evasion from dodgy transfer pricing. A prepaid export royalty and LC structures comes into force here and Edward Pendely from Guna capital states that Indonesia is ‘..making a transition from a low trust society to a high trust society’. Last quote of the session on outlook in the country- “pragmatism and balance”.