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Indonesian Miners Delay Alumina Refinery Plans on Legal Uncertainty

Indonesian Miners Delay Alumina Refinery Plans on Legal Uncertainty

By Wilda Asmarini & Yayat Supriatna on 01:59 pm Jun 19, 2014

Jakarta. Bauxite producers are delaying plans to build alumina refineries in Indonesia due to legal uncertainty over a mineral ore export ban imposed five months ago, government and industry officials said.

Indonesia’s Constitutional Court has yet to decide on a legal challenge against a Jan. 12 export ban on bauxite, nickel and other mineral ores imposed by the government to force miners to build refineries and processing plants.

Before the ban, Indonesian bauxite exports accounted for about 12 percent of global aluminum production, with China taking the bulk of shipments for processing into alumina, an intermediate stage in the production of aluminium.

As many as five alumina refinery projects are underway in Indonesia, industry officials said, but the legal uncertainty means firms have slowed their construction plans for the refineries, which can cost as much as $1 billion each.

“They are worried if the court allows exports again, bauxite producers will be able to resume shipments of raw materials. Investors want the ban to remain,” Dede Suhendra, Mineral Enterprise Director at the mining ministry, told reporters.

The case, brought by Indonesia’s Mineral Entrepreneurs Association, has been put aside by the country’s Constitutional Court as it focuses its attention on election-based lawsuits. The presidential election is on July 9.

Indonesia has only one chemical grade alumina refinery, opened in April by state-owned Aneka Tambang (Antam).

Well Harvest Winning Alumina, a joint venture between Indonesian conglomerate Harita Group and China’s Hongqiao Group, was initially expected to begin operations at its refinery in West Kalimantan in mid-2015.

The start-date has now been pushed back to early 2016 at the earliest, said Erry Sofyan, director of Harita Prima Abadi Mineral, a unit of the Harita Group.

Sofyan added that he hoped the government would allow companies building refineries to export some bauxite to enable them to obtain the necessary funds for their projects.

Bintan Alumina Indonesia is hoping to start operations at its alumina refinery, with a capacity of 2 million tonnes a year, by early 2017, said company director Santony.

Suhendra said the government was optimistic that the court will ultimately decide in its favour, allowing refinery projects to resume.

“If the court decides to not change the ban, then I think things will go smoothly next year,” he said. “I don’t think the Constitutional Court will cancel the ban.”

 

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KB Kee is the Managing Editor of the Moat Report Asia (www.moatreport.com), a research service focused exclusively on highlighting undervalued wide-moat businesses in Asia; subscribers from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing. KB has been rooted in the principles of value investing for over a decade as an analyst in Asian capital markets. He was head of research and fund manager at a Singapore-based value investment firm. As a member of the investment committee, he helped the firm’s Asia-focused equity funds significantly outperform the benchmark index. He was previously the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. KB has trained CEOs, entrepreneurs, CFOs, management executives in business strategy, value investing, macroeconomic and industry trends, and detecting accounting frauds in Singapore, HK and China. KB was a faculty (accounting) at SMU teaching accounting courses. KB is currently the Chief Investment Officer at an ASX-listed investment holdings company since September 2015, helping to manage the listed Asian equities investments in the Hidden Champions Fund. Disclaimer: This article is for discussion purposes only and does not constitute an offer, recommendation or solicitation to buy or sell any investments, securities, futures or options. All articles in the website reflect the personal opinions of the writer.

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