Differences Concept Legal Right Title Ownership Mineral Natural Resources Indonesia Versus other Countries

The rather Hot Issues being discussed involving General Mining Companies in Indonesia, are relating to the recent Government Policy and Rulings that General Mining Companies operating in Indonesia are no longer permitted to Export Raw Mining Ore,  but are obliged to processed their Raw Ore Mining Products to become certain Mining Processed Product  as determined by the Government of Indonesia through a Smelter Processing Plant  within the Indonesian Mining Jurisdiction Area.

The Target of this ruling is to create and develop Value Added to the Raw General Mining Products, before it is exported to outside of the Mining Jurisdiction of Indonesia. In order to boost the development of this Smelter Processing Plants in Indonesia, certain  interesting Incentives should be given to the Mining Companies, by the Indonesian Government. Accordingly, in reality,  there must always be a trade off to achieve the goals and target of a certain Government Policy to increase Value Added to the Raw General Mining Ores produced from the General Mining Territory of Indonesia. The financial conditions, weakness and strenghtness of a certain Country will surely influence the leverage of bargaining and negotiating such Host Country who invites Foreign Investors to be involved in extracting, exploring, exploiting and producing Mineral Natural Resources in such Host Country.       

Companies needs significant amount of Monies / Funds for investing in the construction of a certain  Smelter Plant Processor, and for sure there must also be a certain long term agreement,  between the Smelter Processing Plant and the Mining Companies who are ordering such Smelter Companies to process their Mining Raw Mineral Concentrate  Products, to enable the Smelter Companies to get a high commercial  and quick return of their Investment in building this Smelter Processing Plant.  

For example if we talk about PT Freeport Indonesia (PTFI), who is conducting General Mining operations in Indonesia, than based on Article 10 paragraph 5 of  PT FI Contract of Work ("PT FI's COW"), it regulates that the Company (PT Freeport Indonesia ("PT FI") acknowledges the Government's Policy  to encourage the domestic processing of all of its natural resources into final products where feasible. The Company further acknowledges the Government desire that a copper smelter and refinery be established in Indonesia and agrees that it will make available copper concentrates derived from the Contract Area for such smelter and refinery so established in Indonesia as provided below.     

.......In the event that during the five period commencing on the signing of this Agreement, a copper smelter and refinery facility to be located in Indonesia has not been established or is not in the process of being constructed by any Person, the, subject to the mutual determination by the Government and the Company as to the economic viability of such smelter and refinery, the Company shall undertake or cause to undertaken the establishment of a copper and smelter refinery  in Indonesia to comply with the Policy of the Government.

As implementation of this provision,   PT FI through its affiliates PT Smelting Gresik in Surabaya had constructed the Smelter Processing Plant,  whereby Mitshubishi Materials owned 60.5 % and PT FI  owner 25%, Mishubishi Corporation 9.5% and Nippon Mining and Metals Co owned 5% of the Equity/Shares issued by PT Smelting Gresik. Chiyoda had constructed this Smelter Plant Facilities in the amount of USD 500 Million.

The feedstock smelter is shipped from Freport Grassberg which distance around 2,600 Kilometer from the Smelter Facilities which is closed to Petrokimia Gresik, a Government Fertilizer, who used smelter sufuric acid, and this was the prime reason why the Smelter Gresik was build in this Location.http://www.mmc.co.jp/sren/Gresik.htm The copper smelting and refining complex consists of the smelter itself, which produces copper anodes and process off-gasses high in SO2, the sulfur acid plant, the tankhouse and any other infrastructure within the Site Boundary, including waste water plant, jetty and wharf and material handling facilities.

We observe that Gresik Smelting Facilities processed 40% of PT FI Copper Mining  products output, while the remaining  60%  of PT FI's contrates output are exported,  In implementing this provision of the COW,  Mitsubishi together with PT Freeport Indonesia had developed PT Smelting  Gresik in Gresik Surabaya, in the Year 1997, operated by PT Mitsubishi and PT FI, whereby a certain long term agreement between PT Freeport Indonesia as a General Cooper Mining Company and this Gresik Smelter Processing Plant to process the Cooper Mining Product to produce copper cathode.  PT Smelting Gresik takes in  40 % of PT FI output and export the remaining 60% out-put of PT FI's raw concentrate ore.

In the recent latest progress, PT FI had halted the production of concentrates since February 10, 2017 waiting to receive the Export  Permit  from  the Government of Indonesia to export  ores  and concentrates.We observe that PT FI will only be allowed to Export such Concentrate Ores if  PT FI agree to convert the COW into IUPK (Particular Mining Business Permit). As we understand the Government of Indonesia had issued new regulations, among others the Presidential Decree No.1 Year 2017, whereby these New Regulations permits the continuation of copper concentrate exports for a five (5) Year period through January 2022, subject to certain pre-conditions  to be fulfilled by the Mining Companies operating in Indonesia.

Well, in reality, PT FI as other business Mining Companies, are focusing more on the Profit oriented approaches, whereby the Government of Indonesia, has the more broader and wider task  to Optimize, manage and ensure that the remaining National Resources owned by the People of the Republic of Indonesia are being extracted, explored, exploited and produced for the Most Beneficial Interest to increase and guarantee the Social Welfare of the whole entire people of the Republic of Indonesia.

In other words  each and every step taken by the Government of Indonesia represented by the President as well as the Ministerial level of  the Energy and Mineral Natural Resources Department ("ESDM") are to be taken  for the National Interest of the Republic of Indonesia,  particularly to gain more Added Value of the Mineral National Resources as the National Asset of the Republic of Indonesia.

In this Open, Transparency, Democratic Area, the entire people of Indonesia are controlling, monitoring each and every step and action taken by the Government, the People's Representative in the Parliament (DPR)  in managing, developing, and making policies and rulings on the Mineral Natural Resources, which based on the Basic Principals under the Indonesian Constitution Basic Law, which is Article 33 (3) of the Undang-Undang Dasar 1945 (the 1945 Basic Law Constitution), such  Remaining Mineral National Resources, which are owned by the People of the Republic of Indonesia, must be managed, developed, produced   for the Social Welfare of the Entire People of the Republic of Indonesia.

This concept of Mineral Natural Resources Title Ownership being posses and owned by the People of the Republic of Indonesia, differs from the concept of Legal Title Ownership on the Mineral Natural Resources, adopted by several Western  Countries, whereby Individual or Private company (ies)  are given  the Legal Right Title Ownership on the Mineral National Resources found, extracted  in the location under or below the Surface Land owned by the Individual or Private Company (ies) in such specific country.

This difference Concept of  Mineral Natural Title Ownership, for sure creates differences of policies and rulings taken by the Government and Legislative in approaching,  handling,  managing the exploration, exploitation and producing of the Mineral Natural Resources between Country to Countries. Accordingly, General Mining Investors who are interested to Invest their Mining Business in Indonesia must be fully aware of this Differences Concept, especially in this New Transparent, Openness, Democratic  Era occurring in Indonesia, for which for sure National Interest will also play a significant important role in shaping the trend of Policies and rulings in the Mineral Natural Resources Sectors.

Jakarta, 15 April 2017
Agung Supomo Suleiman
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