The opportunity for Western Australian METS companies in Indonesia - September 2020
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Department of
Jobs, Tourism, Science
and Innovation
GOVERNMENT OF
WESTERN AUSTRALIA
The opportunity for
Western Australian METS
companies in Indonesia
September 2020
Contents Profile of the Indonesian mining sector
Introduction............................................................................2 Australian METS companies Indonesia is one of the world’s largest with low overall levels of economic
operating in Indonesia................................................12 exporters of thermal coal, and a development.
Profile of the Indonesian mining sector.......3
significant producer of copper, gold,
Key Indonesian associations/regulators......13 The performance of Indonesian mining
Key commodities in Indonesia............................. 4 nickel, tin and bauxite.
has fluctuated over time, with policy and
Market entry roadmap –
Trends in Indonesian mining..................................6 It is the location of the largest gold mine, regulatory changes contributing to a
Key considerations..........................................................14
second largest copper mine, and two of relatively high risk business environment.
Opportunities for Getting started...................................................................15 However, Indonesia has also improved its
the five largest coal mines in the world,
Western Australian METS companies.............9
measured by annual production. ranking in the World Bank’s ease of doing
Support for Western Australia
Key players in the business index in recent years, from 123rd
METS companies in Indonesia............................16 While Indonesia’s large-scale coal
Indonesian mining sector......................................... 11 to 73rd between 2013 and 2019.
industry differs from Western Australia’s
global leadership in iron ore, in practice Over that period, Indonesia has been a
there is strong alignment between challenging market for foreign investors
Western Australia’s METS capability and into mining, and for those seeking to
the requirements of the Indonesian undertake exploration. However, it has
Introduction mining sector. remained a profitable and growing market
for a wide range of operators, and for the
The mining industry is significant to
Indonesia has been an important market It has been compiled based on the ecosystem of METS providers.
Indonesia’s economy overall, with an
for Australian Mining, Equipment, experiences of a wide range of Australian Within the market, the Grasberg copper/
economic contribution of between 4-6% of
Technology and Services (METS) METS and professional services companies gold mine has a unique status, as the
GDP and a long-term status as one of
companies since the industry first working in Indonesia. largest mine in the country, a significant
Indonesia’s most consistent sources of
developed as one of Australia’s This guide is timely given the entry into inbound foreign investment and export underground operation in a market
international success stories. force in July 2020, of the Indonesia Australia revenue over the past two decades. dominated by open pit mining. In 2018, it
With its abundant mineral deposits and – Comprehensive Economic Partnership was one of the first foreign owned and
It has also served as a critical driver of
status as a globally important producer and Agreement (IA-CEPA), which allows for operated mines to transition to majority
economic activity in parts of the country
exporter of resources, Indonesia continues improved market access for Australian Indonesian ownership.
to be a market of high interest with a companies in the Indonesian METS sector.
diverse range of Australian METS companies The guide includes:
active in, or actively exploring, opportunities.
»» a profile of the Indonesian mining sector
This guide aims to increase Australian »» key trends in Indonesian mining
METS companies’ understanding of the »» opportunities for Western Australian METS
Indonesian market, distilling the wide »» key players and commodities
range of information and resources about
The guide also provides a Market Entry
the Indonesian mining sector.
Roadmap and Getting Started list for
It provides a contemporary snapshot of companies considering doing business in
the issues and information most relevant Indonesia for the first time. This sets out
to Western Australian METS companies, some of the issues that Western Australian
including some challenges of the market METS companies should consider when
as well as emerging areas of opportunity. working in the market.
Cover image: MineArc Systems MineSAFE Refuge Chamber as used in mines across Indonesia. Copper mining in Indonesia.
2 | The opportunity for Western Australian METS companies in Indonesia The opportunity for Western Australian METS companies in Indonesia | 3
Key commodities in Indonesia
Thermal coal Bauxite Nickel Gold Copper
Top operations Top operations Top operations Top operations
»» Sangatta (Thiess*) »» Bintan Island »» Sorowako »» Grasberg
»» Tujuh Bukit
Production comment/ trends Production comment/ trends Production comment/ trends
»» Batu Hijau (Macmahon*)
Despite global climate change concerns Indonesia is the 11th largest bauxite Indonesia is the world’s 4th biggest
regarding coal use, this commodity producer, with production centred on producer, representing 8.6% of global Production comment / trends
continues to play a key role in the country’s Bintan Island. production. Indonesia is the world’s 6th ranked gold
energy mix and export revenue. Indonesia producer, with 4% of global gold production,
Overall Indonesia is ranked 8th in terms of Vale Indonesia’s Sorowako operation is one
is the world’s top thermal coal exporter and half of which comes from the Grasberg
reserves at 15.88 million tons. of the world’s largest integrated lateritic
has 2.2% of proven global coal reserves. operation. Indonesia is also the 2nd largest
nickel production and processing facilities,
Top locations copper producer globally, accounting for
Top locations accounting for 3% of global production.
1. Riau around 10% of global production.
1. South Sumatera Top locations
2. North Sumatera Top locations: Gold
2. South Kalimantan
3. Bangka Belitung 1. Sulawesi 1. Papua
3. East Kalimantan
4. West Kalimantan 2. Sumatera 2. Sumbawa
3. West Java 3. East Kalimantan
4. Central Kalimantan
Top locations: Copper
1. West Java
2. Papua
3. South Sulawesi
4. Central Java
* Australia connection
by operation or ownership
4 | The opportunity for Western Australian METS companies in Indonesia The opportunity for Western Australian METS companies in Indonesia | 5
Trends in Indonesian mining Indonesia’s national champion mining
company. This enterprise is seeking a
Community engagement
and development
strong position across the breadth of Since 2009, all mining companies have legal
Beyond commodity price movements, Increasing standards, Indonesia’s key commodities, with strong obligations for community development
there are a number of trends that have increasing innovation – ambitions across downstream processing, and empowerment as part of their licence
been transforming Indonesian mining but only for some operators research and development and the to operate. Some of these programs, such
over recent years. There are two key drivers behind an adoption of best practice for mining as those operated by Freeport Indonesia or
increased focus on safety, improved safety, operations and environmental Vale Indonesia are significant in scale,
The push for domestic operations management, training and performance. supporting the development of whole
downstream processing environmental performance in
MIND ID’s portfolio now includes the communities across health, education,
Indonesia’s authorities have implemented Indonesian mining.
Grasberg mine, coal producer Bukit Asam, infrastructure, environmental management
a number of policies aimed at increasing
The first is that those operating to an diversified metals miner Aneka Tambang and economic and social development.
the downstream processing of
international standard are improving (ANTAM), tin producer Timah, bauxite Effective and outcomes-oriented
commodities in Indonesia. This has
their Indonesian operations to align with producer Inalum and mining R&D institute community engagement and
included scheduled bans on exports of
their increased internally-driven MMI. It will also soon include a stake in development remains a strong area of
some unprocessed commodities,
performance objectives. This is driving nickel producer Vale Indonesia. MIND ID’s interest for the wide range of companies
including nickel and bauxite. While there
significant improvement projects at a forward program includes the with these obligations.
have been inconsistent approaches to
number of large operations across key development of a range of downstream
implementing the policy, there has
commodities. processing assets. Exploration activity
nevertheless been large-scale investment
in smelters and related downstream The second is the rise in Indonesia’s own As a result, it will be increasingly Mining exploration in Indonesia has
infrastructure. domestic standards and those of its important for Western Australian METS historically been funded mostly by foreign
leading players. This gradual improvement companies to be equipped to work with capital. However, a range of regulatory and
Quality still counts, is supported by stronger safety and market issues have led to a decline in
SOE mining entities as well as private
but competition has increased environmental regulation and exploration from its peak of US$450
sector operators.
METS companies previously in the “high enforcement, competition for talent and million in 1995 to less than US$100 million
quality” market competing against recognition of the positive impact on Divestiture and the decline annually today.
international peers, now face a more operations and profitability. of the Contract of Work regime As exploration activity continues to decline,
competitive environment. The most The 2009 Mining Law saw Indonesia move
When combined, these account for only a there is a growing need for a policy
successful and profitable METS companies away from its long-established Contract of
minority of Indonesian mining projects. response that better supports exploration.
established in the market have Work (CoW) and Coal Contract of Work
However, they represent a sufficient and However, the recent revision to the 2009
restructured their operations to maintain (CCoW) regime, under which terms were
growing market for Western Australian Mining Law includes a firmer obligation on
their equipment and services at these set, including taxation, for the full duration
METS companies. mining companies to conduct (and
lower price points. of the project – typically 30 years. provide a budget for) increased exploration
The market for relatively undifferentiated The role of state-owned enterprises activities each year.
In recent years, a wide range of foreign-
equipment and services is now heavily State-owned enterprises (SOEs) play a owned mines have transitioned from CoW This may provide further opportunities for
commodified and is supplied intensively significant role across every sector of the to Special Mining Business Licences METs companies servicing exploration activity.
from both domestic and low cost Indonesian economy, and account for (IUPKs), which include a requirement to
providers from across Asia. some of the largest companies in each Reform and standardisation of
divest 51% of equity to Indonesian
part of the mining sector. regulatory approvals
There is a growing niche for highly ownership. This has triggered changes in
differentiated and innovative METS MIND ID (formerly the Inalum Group) has the ownership of significant mines and the In 2018, the Indonesian Government
companies, working with the most emerged as the lead SOE for Indonesian partial or total exit of a number of foreign launched its Online Single Submission (OSS)
sophisticated customers in the market. mining generally, with a clear role as miners, including several from Australia. service, after several years of development.
6 | The opportunity for Western Australian METS companies in Indonesia The opportunity for Western Australian METS companies in Indonesia | 7
This service integrates the issuance of
permits from all levels of government,
in obtaining permits and business
licences, particularly local and regional Opportunities for
through a single online registration
process. Importantly, this includes many of
supporting licenses. However, the OSS
does demonstrate a genuine
Western Australian METS companies
the permits required for business commitment to streamlining and Western Australia’s business engagement According to the Indonesian Ministry of
establishment, operation and imports. improving transparency in this area. with Indonesia in the METS sector has been Energy and Mineral Resources, 36 smelters
This trend has continued through the shaped by Indonesia’s long-term advantages are in development and expected to
These initiatives are a work in progress. A
latest changes to the 2009 Mining Law in and challenges in the mining sector. become operational by 2021, with a
range of permits and licences in the
which all mining licensing authority has capacity of over 70 million tonnes per
mining sector remain in parallel approval Western Australia’s expertise in areas like
been transferred to the central annum (MTPA). These are predominantly
processes through the Indonesian safety and mining software, artificial
government and out of the hands of the in nickel, with additional smelters in
Investment Coordinating Board (BKPM). intelligence and robotics are strongly
relevant Governors. bauxite, copper, iron, lead and zinc.
aligned to opportunities in the Indonesian
In practice, Australian METS companies
METS sector. The broader policy agenda to increase
continue to face regulatory uncertainty Use of expatriate employees downstream processing will continue to
Under IA-CEPA, Australian companies are
Over the past 5 years, it has become more drive new investment over the coming
allowed ownership of up to 67% of mining
difficult for Australian METS companies to decade, across feasibility, design,
services entities established in Indonesia
employ expatriates in Indonesia. construction and operation.
– creating an improved investment climate
In addition to the formal rules outlining for WA METS companies.
Safety-related training,
the specific position titles available to
There is significant interest on the part of systems and technology
expatriate employees, ratios of local to
Indonesian industry, but limited in-market Safety performance in Indonesian mining
expatriate staff and knowledge transfer
capability – presenting opportunities for is highly variable, but safety regulations are
requirements, the time and compliance
WA METS companies in the following areas: now more strictly enforced, and the range
cost in this area for foreign companies has
of operators with a strong commitment to
increased substantially. Development of downstream
safety is increasing.
It is increasingly common for relatively
processing assets
A range of policy interventions have In 2018, the Ministry of Energy and Mineral
large Australian METS companies to have
triggered a wave of smelter developments. Resources enacted new regulations for
only a few or no expatriate staff in
Indonesia, given the compliance
requirements and the delays in obtaining
Market advantages Market challenges
local work permits (KITAS), or in finalising
business establishments with large »» Leading producer of coal and minerals »» One of Asia’s more complex markets in which
numbers of foreign employees. (bauxite, nickel, tin, copper, and gold) to invest or do business following a period of
»» Rich mineral reserves (for example, the significant policy and regulatory changes
As a result, Indonesia now has among the
giant Tujuh Bukit copper prospect) »» Minimal exploration activity
lowest level of expatriate employees in the
»» Low labour costs relative to developed »» Challenging geography, poor infrastructure
region, reported by the Indonesian in remote locations and shortages of suitably
mining countries (Australia, US, and Canada)
Government to be less than 0.1% of the qualified staff
»» Geographically close proximity to key
population, compared to Thailand (~5%) or »» Challenging and changeable regulatory
commodity demand markets (China and
Malaysia (~14%). However, there is still a India) framework regarding labour, imports of
relatively clear and simple process to seek industrial equipment and intermediate
and obtain work permits for expatriates goods, local content rules for inputs,
who are appointed as directors (rather domestic processing requirements for
outputs, and foreign ownership limits.
than employees).
8 | The opportunity for Western Australian METS companies in Indonesia The opportunity for Western Australian METS companies in Indonesia | 9
Workplace Health and Safety, and has
been actively seeking to promote a shift
established operations committed to
business improvement projects alongside Key players in the
from a compliance-focused safety culture,
to proactive risk management.
the development of new operations.
Indonesian mining sector
For example, Vale Indonesia has
As the number of companies serious announced a doubling of its planned For METS companies, it is useful to profile for expenditure on more sophisticated,
about safety grows, the market for safety annual capital expenditure to US$165 the large number of mining developers/ higher quality and more innovative METS
improvement solutions, training, and million for operational improvement as well operators into 3 distinct groups: services and inputs.
related services will continue to expand. as capacity expansion. Merdeka Copper
1. Companies operating relatively These companies:
Gold has also budgeted US$160 million for
Environmental management and operational and exploration optimisation at informally. These can be large or small »» represent a relatively small number of the
waste solutions Tujuh Bukit, Wetar Island and Pani. and private or state-owned, but mine developers and operators in Indonesia
Environmental and energy efficiency generally working independently with »» have larger scale and more formalised
The drive to increase operational efficiency few western suppliers.
issues are of increasing importance in and productivity presents an opportunity capex planning
mine management across Indonesia. for WA capability in areas such as artificial »» have greater focus on monitoring and
2. Private sector companies operating to
These include waste management, air intelligence and robotics. improving operational efficiency
international standards due to their
pollution, water conservation,
management, ownership, borrowings or »» have greater adherence to energy and
deforestation and habitat loss, energy Exploration other commercial links. environmental performance, workplace
efficiency and biodiversity loss. These
Exploration has been in decline in recent safety and similar responsibilities
issues are being actively managed in 3. SOEs operating to international
years, but there is growing pressure to
relation to large local communities as well »» are more likely to have a formalised
further reform policy and regulatory standards.
as the mining operations themselves. approach to training, workforce
settings to encourage this to rebound. It is rare for Australian METS companies development, and community benefit
Indonesia has longstanding regulation in When exploration picks up, there will be
to have a competitive offering in the
this area through the implementation of substantial need for improved exploration Across key commodities in Indonesia,
first category.
the Environmental Impact Analysis technologies across analysis and modelling, examples of such companies are set out in
program (AMDAL), regulation of hazardous advanced geophysical tools and methods, The opportunity for Western Australian the table below:
and toxic (B3) waste, and an environmental and low footprint and mobile drilling. METS companies can generally be found
From within these companies, Australian
performance rating system (PROPER). across groups 2 and 3.
Workforce development mining operators active in Indonesia
In recent times, this regulatory framework This is where the private sector and SOEs include Agincourt Resources and COKAL.
has been more strictly enforced. This takes The increase in sophistication and
work to higher operating standards, and Western Australia companies include
place against a context where a small standards across Indonesian mining
have management processes that allow Nusantara Resources and Kingsrose Mining.
number of companies operate to a high creates a need for more highly skilled
standard, but many have not yet workers. This creates opportunities linked
developed basic policies to understand to the professional and technical Key commodity Operator Contractor
and document their environmental workforce, and also for upskilling workers
Coal Bumi Resources, Kaltim Prima Coal (KPC), BUMA, Pama Persada,
impact, or prepare for environmental onsite from non-professional backgrounds.
Adaro Energy, Delta Dunia Makmur, Medco Thiess, Petrosea
rehabilitation at end of mine life. The Indonesian mining sector recognises Energy, Indika Energy, Bukit Asam, COKAL,
the depth and relevance of Australia’s Bayan Resources, Berau Coal
Optimising operations university and vocational training
As with many markets, the need in capabilities and its links to Australia’s Copper/Gold Freeport, AMMAN Mineral (formerly Newmont Darma Henwa,
Indonesia for operational improvement is resources industry. This has created scope NTT), Merdeka Copper Gold, Agincourt, Pamapersada
a key driver of new capital expenditure and for new partnerships between Australian Nusantara Resources, Kingsrose Mining Nusantara, (PT United
Tractors), Macmahon
investment in new services and and Indonesian institutions to address
technologies. This is an active source of areas where long-term workforce Nickel Vale Indonesia, ANTAM
opportunity in Indonesia, with significant development needs are growing.
10 | The opportunity for Western Australian METS companies in Indonesia The opportunity for Western Australian METS companies in Indonesia | 11Australian METS companies Key Indonesian associations/regulators
operating in Indonesia Who are the Key Indonesian Associations?
Indonesia has a highly developed »» Copper/gold contract mining – Darma »» Australian Mining, Infrastructure, Energy & Resources Chambers (Ausmincham)
ecosystem of domestic and foreign METS Henwa, Pamapersada Nusantara (PT »» Djakarta Mining Club & Coal Club Indonesia (DMC/CCI)
providers. At a commodity level, there are United Tractors), Macmahon
»» Association of Exploration and Mining Development Indonesia (EMD Indonesia)
suppliers for almost all standard supplies,
equipment and services. There are approximately 70 »» Indonesia Mining Services Association (ASPINDO)
Australian METS companies currently »» Indonesian Mining Association (IMA-API) Indonesian Coal Mining Association (ICMA-APBI)
Australia has a strong position across the operating in Indonesia, including
industry, including in its two largest »» Indonesia-Australia Business Council (IABC)
Thiess, Orica, and from Western
segments by revenue: Australia, companies including
»» Coal contract mining – BUMA, Pama Macmahon, Micromine, MineARC Who regulates what
Persada, Thiess Systems and BIS Industries.
Policymaker and supervisor of mining Ministry of Energy and Mineral Resources
activity, issuance of mining-related (Kementerian ESDM)
operational licenses
Policymaker and supervisor for environmental Ministry of Environment and Forestry
issues, approving body of Environmental (Kementerian Lingkungan Hidup dan
Impact Analysis (AMDAL) Kehutanan)
Policymaker and supervisor for downstream Ministry of Industry
activity (mineral processing)
Trade, export and import policymaker, Ministry of Trade
determines import quotas and restrictions for
certain commodities
Formulates labor policies and approves work Manpower Ministry and Law and Human
permits for expatriates Rights Ministry (Directorate General of
Immigration)
Primary contact point regarding land use Regional governments
rights and engagement with local
communities
Formulates foreign investment policies, Investment Coordinating Board (BKPM))
oversees application of overall regulatory
procedures for investors
Micromine, Drill hole cylinders. Micromine modular solutions allow exploring mining companies Taxation authority Ministry of Finance and Directorate
to capture, image and interpret mining exploration data. © Micromine General of Taxation
Central bank and the authority responsible Bank Indonesia
for regulating foreign currency transactions
and remittances
12 | The opportunity for Western Australian METS companies in Indonesia The opportunity for Western Australian METS companies in Indonesia | 13Market entry roadmap – Getting started
Key considerations Find your initial contact points and market information
PRE ENTRY 1. Australian, state and territory representatives with offices in Indonesia:
a. Government of Western Australia Office (jtsi@jtsi.wa.gov.au) - www.jtsi.wa.gov.au
I’m ready to seriously How to confirm the competitive b. Austrade (Indonesia@austrade.gov.au) - www.austrade.gov.au
explore doing How to build a support network positioning of your offering
business in Indonesia. 2. Mining associations and chambers:
What do I need to a. Australian Mining, Infrastructure, Energy & Resources Chamber (Ausmincham) - www.
consider? Market research ausmincham.or.id
& building the b. Djakarta Mining Club & Coal Club Indonesia (DMC/CCI) – www.djakarta-miningclub.com
business case c. Association of Exploration and Mining Development Indonesia (EMD Indonesia) - www.
emdindonesia.com
How to identify and assess d. Indonesia-Australia Business Council (IABC) - www.iabc.or.id
How to identify and access
potential business partners,
your target end users 3. Work through these contacts or your broader network to:
distributors or representatives
a. get introductions to executives with companies already in Indonesia
b. review the latest reports and publications on Indonesian mining and METS sector
c. get introduced to experienced professional advisors specialising in the sector
d. understand your options for structuring your market entry, and working through local
ENTRY partnerships
I’ve decided to Understanding the impact of Understand the primary touch-points for foreign business with the
commit to developing the regulatory environment Deciding what business
my Indonesia-
Indonesian Government
and foreign ownership limits structure to establish
focused business. 1. Business establishment
What are some a. Businesses should contact the Indonesia Investment Promotion Center (IIPC) in Sydney
Establishing – invest@iipcsydney.com
critical issues to
your business The IIPC is the overseas branch of the Indonesian Investment Coordinating Board (BKPM),
consider?
serving as the first contact point for foreign investors
b. The Indonesian Government has recently implemented a one-stop online company
Planning for exit or local establishment and licensing system for investors, called the Online Single Submission (OSS)
Engaging professional advisors
partner/distributor challenges (www.oss.go.id/oss)
c. Classification of businesses in Indonesia is conducted using a 5 digit number that
corresponds to a specific business activity in the Indonesian Business Classification List
(KBLI). This classification will also determine levels of ownership you may possess under
Indonesia’s Negative Investment List (www.oss.go.id/oss/#Home/portal/lstKbli)
POST ENTRY d. All business set-up should be conducted in conjunction with qualified in-country
Assuming my business professionals familiar with your business focus.
Local and expatriate employment Managing personnel safety
will be successfully 2. Employing expatriates and obtaining working visas
and local partner challenges and security risks
established and my To understand what is required for foreign work permits, it is advisable to refer to the Indonesian
business development Immigration Directorate guide on KITAS/KITAP application process (www.imigrasi.go.id)
is on track, what
ongoing operational Operating 3. Taxation
issues are most your business To understand your taxation responsibilities in Indonesia, it is advisable to work closely
commonly
with a qualified tax advisor in Indonesia. Areas to consider include:
experienced by
Australian businesses Unexpected regulatory a. Registering with the appropriate taxation office for your location
working in Indonesia? change, goods import issues Legal and tax compliance b. Ensuring that your Tax Identity Number (NPWP) and Electronic Filing Identity (EFIN) for
and other non-tariff barriers online tax reporting are current
c. Ensuring that all tax compliance for company registration has been undertaken
d. Understanding your liability related to individual (employee) income tax, various
withholding taxes, land and building tax and value added tax
e. Tax payment and reporting period - taxes need to be paid and reported, and depending on
the type of taxes, it may be paid and reported monthly or annually.
14 | The opportunity for Western Australian METS companies in Indonesia The opportunity for Western Australian METS companies in Indonesia | 15Support for Western Australia METS companies in Indonesia The Western Australian Government and Austrade have a direct, on the ground presence in Indonesia, and work together to support Western Australian METS companies. We would like to acknowledge Austrade’s significant role in developing content for this guide. Indonesian regulatory content was contributed by Hiswara Bunjamin & Tandjung in association with Herbert Smith Freehills (www.hbtlaw.com). Government of Western Australia Office (Jakarta) Jennifer Mathews, Commissioner for Western Australia World Trade Centre II, 18th Floor, Jl. Jenderal Sudirman Kav. 29, Jakarta 12920 Indonesia Phone: +62 21 2952 2659; +61 438 670 411 Email: Jennifer.Mathews@jtsi.wa.gov.au Invest and Trade Western Australia, Department of Jobs, Tourism, Science and Innovation Elizabeth Fells, Executive Director Level 11, 1 William Street Perth, Western Australia 6000 Phone: +61 8 6277 2863 Email: Elizabeth.Fells@jtsi.wa.gov.au www.jtsi.wa.gov.au Australian Trade and Investment Commission (Austrade), Jakarta Australian Embassy Jl. Patra Kuningan Raya Kav. 1-4 Jakarta Selatan 12950 Indonesia Phone: +62 21 299 45400 Email: Indonesia@austrade.gov.au 16 | The opportunity for Western Australian METS companies in Indonesia
You can also read
