PT Indonesia Asahan Aluminium (Inalum) has officially taken over 51.2 percent of PT Freeport Indonesia’s shares at the end of last year. Big tasks await the state-owned mining holding company, particularly smelter construction as mandated by the 2009 Mineral and Coal Law.
So far, there was no progress in the construction of Freeport Indonesia’s smelter. Physical construction has not been carried out, even its location has not yet been determined.
Freeport Indonesia’s export permit expired two months after Indonesia officially controlled the majority of its shares. Smelter construction is one of the requirements for the US mining company to obtain an export license extension. This month, Freeport Indonesia must be able to provide certainty regarding the time and location of the smelter construction.
So far, the government seems less assertive in implementing the mandate of the Mineral and Coal Law, which requires mining companies to build smelters as of 2014. Freeport always gets export permit even though there was no physical construction of its smelter in the last four years.
Now, the conditions are different. The government has become the majority shareholder in Freeport Indonesia through Inalum. Thus, it should be able to easily encourage the realisation of the smelter construction.
Until the end of last year, the smelter development has only reached 2.5 percent. According to the Ministry of Energy and Mineral Resources, the progress is still in accordance with its predetermined schedule. The target is the completion of the construction process and operation of the smelter in 2023.
The Energy and Mineral Resources Ministry’s Mineral and Coal Director General Bambang Gatot Ariyono said Freeport Indonesia has submitted an application letter to extend its export permit. In the letter, Freeport also stated its plan to build a smelter. “If I’m not mistaken, it’s located in Gresik [Java Integrated Industrial and Ports Estate],” he said in Jakarta, Thursday (1/24).
Freeport Indonesia confirmed it in a statement. “We have included the planned construction of a smelter in Gresik,” Freeport Indonesia President Director Tony Wenas said in Jakarta, Friday (2/1). However, he did not mention when the construction phase would begin.
In reality, however, there is still no final decision regarding the construction site of Freeport Indonesia’s smelter. The State-Owned Enterprises (SOE) Ministry’s Deputy for Mining, Strategic Industry and Media Affairs Fajar Harry Sampurno said there are three options for its location: Papua, West Nusa Tenggara, and East Java.
Up to now, the three locations are still being studied. Freeport Indonesia is indeed preparing a smelter in Gresik, but there are still other considerations in terms of energy sources, distance from the mining sources in Papua, and the smelter capacity. Moreover, SOE Minister Rini Soemarno has specifically requested another review of site selection for the smelter construction.
According to Rini, the smelter needs a large electricity supply. Therefore, the chosen location must also have a large electricity reserve. For electricity sources, the solution is to build a hydroelectric power plant (PLTA), which is deemed cheaper than other types of power plants. “It will be decided soon. Basically, it [smelter] must be built in five years,” Fajar said in Jakarta, Friday (1/2).
In addition to determining the location, there is also no clarity regarding the sources of funding for the smelter construction. Based on the 2018 fourth quarter report published by Freeport McMoran, the total investment to build the smelter reached US$ 3 billion (Rp 42.2 trillion) and each shareholder will bear the construction cost.