The government is urging all players in the mining industry to implement the nation’s downstream program, especially when it comes to the added value of their products. Specifically for the mining industry, the government has targeted 70 percent of smelter investments to be realized by 2014. This will be concurrent with the prohibition of raw material exports.
Martiono Hadianto, chairman of the Indonesian Mining Association, is one of the few who reject the government’s plan. The Newmont Nusa Tenggara president director says that according to his calculations, the domestic industry will not be able to build smelters, especially if the regulation conflicts with a mining contract (known as kontrak karya or KK in Indonesian) that was signed long before the policy was issued.
Tempo journalists Ali Nur Yasin, Gustidha Budiartie, and Ayu Prima Sandi took the opportunity to meet with 68-year-old Martiono in order to hear his explanation on how the policy will affect Newmont, and also the industry in general. Excerpts from the interview are as follows:
As chairman of the Indonesian Mining Association, why do you often challenge policies for companies that own smelters?
We’ve been working based on mining contracts (KK). All of our mining contracts consist of contractor obligation. The government is only obliged to do one thing, ensure that we can continue our business.
Yet now, there are new policies, such as Law No. 4/2009 article 171 or article 169 about mineral and coal mining that is contradictory despite the fact that we are a lawful state that should be able to provide legal assurance.
The representative from the Indonesian government who happened to sign the contract was the president at that time, Soeharto; this is still considered the government. How come now, Indonesia, which is represented by the government, wishes to violate the contract or agreement that was agreed upon by the previous government. Why?
For example, you mean like the mineral and coal mining law?
All policies regarding the development of smelters are actually included in a KK. Why is the government now including regulations in a law that contradicts the contents of a KK? In a mining contract, we are obligated to help the government process and purify. Therefore, we conduct studies. If the study results state that it is not feasible, then we don’t do it.
But the law states that in 2014, companies are obligated to build smelters. This is funny, why would an investment be based on a law? What if it’s not feasible? Then what?
Maybe the government’s plan is to prevent water and land from being exported too?
What? Are we exporting? Let’s put it this way, in Batu Hijau, we don’t mine copper, we mine rocks. Out of a ton of rocks, we only get 0.05 percent of copper. Imagine, we can only get 50 kilograms of copper from one ton, or 1,000 kilograms, of rocks.
Before it turns into copper, we must crush the rocks using a specific type of technology and up to 1,500 megawatts of electricity. The most expensive part is changing the size and turning the rock into copper.
Now the question is, isn’t this a form of processing? Because rocks have no value, it goes into a smelter, and goes out 100 percent. The problem is, a ton of smelter needs an investment of US$10,000 while processing rocks requires $20,000 per ton.
Isn’t the concept like this: you don’t have to build a smelter, you can join (with another company’s smelter)?
Yes. What we’re trying to do now is try to collaborate with prospective investors who are interested in investing in smelters, but not us. We’re leading towards that process.
Under this condition, do you have any suggestions for delaying the development of smelters?
Well, it’s not a suggestion. We must delay whether we like it or not. We already relayed this suggestion to the government. And instead, they now call me the minion of foreigners (foreign companies).
Do you have any plans to take challenge the coal and mineral mining law to the Constitutional Court?
We were thinking about that, but at seeing the way the Constitutional Court works now, it’s a bit difficult. Even Agus Marto lost (the case on Newmont’s share divestment). We don’t believe the court is objective.
What if this policy continues to be implemented?
Then we’ll shut down. We don’t know what the impact will be if we shut down.
Will you really shut down?
Yes, of course. Because there’s nothing we can do. If we shut down, then that means 8,000 people in West Sumbawa district will lose their jobs, whereas West Sumbawa district only has a population of 110,000. So, 8,000 families, or 24,000 people, or 24 percent of West Sumbawa’s population will be out of work.
And what about Newmont’s future projects related to the smelter policy?
I don’t want to respond to that. But I want to describe how the mining industry is under a lot of pressure.
If I may be more specific, Newmont Mining Corp is a goldminer. So it’s obvious that if viewed from the aspect of Newmont Mining Corp, in one year, the value of gold dropped from $1,800 to around $1,200. That’s outstanding. I’m imagining how Newmont must now adjust because the value has dropped by 30 percent.