Smelter Development Strengthens Downstream Industry
The cornerstone laying for the construction of PT Freeport Indonesia’s smelter in the Gresik Special Economic Zone, East Java, is part of the government’s programs to strengthen the country’s downstream industry.
President Joko Widodo inspects the groundbreaking location for the PT Freeport Indonesia smelter construction in the Gresik Special Economic Zone (SEZ), East Java, Tuesday (12/10/2021).
JAKARTA, KOMPAS - President Joko “Jokowi” Widodo laid the first stone for the construction of PT Freeport Indonesia’s smelter in the Gresik Special Economic Zone (Gresik SEZ) in Gresik, East Java, on Tuesday (12/10/2021). The construction of the smelter will strengthen the downstream industry in the country. In addition to increasing the added value of primary commodities because they will be no longer exported in the form of raw materials, the construction of the smelter will also increase state revenues and provide jobs for 40,000 people.
“I will order any companies, either private or state-owned, which are related to mineral and coal mining to enter the downstream industry. What for? Once again, in order to increase the value of our commodities. Don't ship [export] them in the form of raw materials, don’t ship the raw materials," said the President.
According to Jokowi, if a smelter is built in Indonesia, it will further strengthen the downstream industry and support the economic independence and development of the nation.
He said that Indonesia was among seven countries with the largest copper reserves in the world, so the construction of the smelter was intended to bring a significant benefit to the people.
He continued that Indonesia’s large mineral reserves and concentrates should be prevented from being processed in smelters in other countries. If the processing is carried out overseas, the added value of the raw mineral materials would, instead, be enjoyed by other countries. Developing Indonesia’s downstream industry “will make our nation more independent and advanced," he said.
Biggest in the world
President Jokowi said he was informed that the smelter, to be built with a single line design, would be the largest in the world as it would have the capacity to process 1.7 million tons of copper concentrate a year.
“If [the concentrates] were loaded on to small trucks, with a capacity of 3-4 tons, there would be a lot of trucks lining up here. If each truck has the capacity to carry 3 tons, it means that there will be 600,000 trucks lined up here. Imagine. It's huge. There will be about 480,000 tons of copper metal," said President Jokowi.
LUKAS - BIRO PERS SEKRETARIAT PRESIDEN
President Joko Widodo delivers a speech at the groundbreaking for the construction of the PT Freeport Indonesia smelter in the Gresik Special Economic Zone (SEZ), East Java, Tuesday (12/10/2021).
The President hoped that that Freeport's presence in the Gresik SEZ would attract other industries to enter the area. "Especially, copper derivative industries, they should also participate in investing [in the SEZ]. The government will continue to provide full support so that the investment climate improves,” he said.
At the occasion, the President was accompanied by Coordinating Economic Minister Airlangga Hartarto, State-Owned Enterprises (SOEs) Minister Erick Thohir, Industry Minister Agus Gumiwang Kartasasmita, Energy and Mineral Resources Minister Arifin Tasrif and Cabinet Secretary Pramono Anung. Also present were East Java Governor Khofifah Indar Parawansa, Gresik Regent Fandi Akhmad Yani, the president director of PT Freeport Indonesia, Clayton Allen “Tony” Wenas and the president director of PT AKR Corporindo Tbk, Haryanto Adikoesoemo.
Making history
According to Airlangga, Indonesia has 19 SEZs, 15 of which already in operation with a total investment of Rp 64.4 trillion (US$4.5 billion). "There are 150 companies and they have employed 23,000 workers with exports reaching Rp 3.8 trillion," he said.
Freeport’s smelter in Gresik is the largest single line in the world with the capacity to process 1.7 million tons of concentrate and to produce 600,000 tons of copper. The price of copper, which is now experiencing a super cycle, has reached $9,400 per ton. "So, with an investment of Rp 42 trillion or $3.5 billion, the revenues from copper alone will reach $5.4 billion," he said.
The investment in precious metal recovery, Airlangga added, reached $200 million. “It can produce between 35 and 54 tons of gold, so the factory has also been prepared for gold production. The price of gold is now $1,700 per troy ounce. If production can reach 35 tons, the revenues will be $1.8 billion. If the production is 50 tons, the revenues will reach $2.7 billion. So, imagine, for the past 40 years, about $2 billion [of revenues] on average were enjoyed by other countries, with about 70 percent to Spain or to Japan. Today is historic because all of this will be produced in Gresik," he said.
According to Airlangga, the construction of the copper smelter should be supported by all ministries. The project requires, among other things, water, gas infrastructure and a large investment. "We also provide a fiscal incentive because it is integrated with PT Freeport’s operation. The tax allowance regime doesn't apply here, but it's part of the contract of work. So, the incentives are included in the contract," he said.
Kompas/Bahana Patria Gupta
Coordinating Minister for Economic Affairs Airlangga Hartarto (left) gave a speech at the presentation of the Gresik Special Economic Zone Designation Government Regulation (SEZ) and the Gresik SEZ Development and Management Business Entity (BUPP) at the Gresik SEZ Java Integrated Industrial and Port Estate (JIPPE) Office, East Java, Tuesday (12/10/2021). The Gresik SEZ is one of 4 additional SEZs set by the government which aims to strengthen the downstream industry and exports.
Meanwhile, Erick said that after acquiring a 51 percent stake, the government would ensure that Freeport would continue its innovation and transformation programs. Freeport's revenue is expected to grow 100 percent this year. “Last year revenue reached Rp 50 trillion, and in December this year it is expected to reach Rp 105 trillion. The net profit, which was about Rp 10 trillion last year, is expected to increase to Rp 40 trillion as of this December," said Erick.
Erick said the rise in revenue was due to the increase in Freeport's production capacity, the increase in copper prices and improvement of efficiency. "And there is also a precious metal refining facility, which will produce gold, silver and of course other precious metals, so that later we can produce an average production of 35 tons of gold per year with a total revenue of Rp 30 trillion," he said.
KEK Regulations
During the handover of documents on government regulations on the operation of the Gresik SEZ at the Gresik SEZ Java Integrated Industrial and Port Estate office, Airlangga said he would encourage investment in processing of copper electrorefining anode slime and precious metals in the Gresik SEZ.
This will mean that almost all of Freeport's mineral production will be processed domestically. However, before the precious metal refinery is built, most of Freeport's production will still be exported.
Meanwhile, during an online discussion "Beware of State Losses in Mining Investment", the executive director of the Center of Reform on Economics Indonesia (CORE), Mohammad Faisal, said that the mining sector had enormous potential to boost state revenues. However, there were still many sources of state revenues in the mining sector, both in the forms of tax and non-taxes, which were not used optimally due to poor mining business governance.
In addition, there are also export “leaks” in the nickel products and trading system problems in the form of discrepancies in the measurement of nickel ore levels between miners in the upstream and smelter operators in the downstream.
This article was translated by Hendarsyah Tarmizi.
