June 15, 2023
JAKARTA – After the government enforced a ban on bauxite exports on Saturday, mining firms are calling for a remedy from the government to alleviate the ban’s impact, warning that output cuts could see hundreds of miners losing their jobs.
Producers say imposing a price floor to control how much smelters must pay for bauxite, as well as a push for local banks to provide more funding for smelter development, could lessen their pain.
For months, industry players have been pointing to a mismatch between national bauxite output and existing smelters’ input capacity, and that at current production levels, banning exports would result in around 17 million tonnes of unprocessed bauxite.
The government acknowledges the issue, with Irwandy Arif, special advisor to the energy and mineral resources minister, saying that domestic bauxite production could reach 31 million tonnes this year against the existing smelter capacity of only 14 million tonnes.
This would not result in a stockpile of surplus bauxite, however, as miners could curb production. Furthermore, the existing smelters were not running at full capacity, he said.
“Those miners can still sell [more] bauxite when the operating smelters increase their capacity [utilization],” Irwandy said on Monday.
The ministerial aide expressed his hope that the eight companies currently building smelters would make “good progress” in narrowing the difference between bauxite miners’ output and smelters’ input.
“Funding may be the main challenge [for building smelters], but there are some companies that have ill intentions. There is suspicion of that,” Irwandy stated, without explaining further.
Ronald Sulistyanto, acting head of the Bauxite and Iron Ore Companies Association (APB3I), said building a smelter was no easy feat.
He pointed out that in 2014, when the government imposed a bauxite export ban for the first time, more than 70 companies had mining permits (IUP). However, only one company, Harita Group subsidiary PT Well Harvest Winning (WHW) Alumina Refinery, had built a smelter after the ban was lifted.
“That shows how hard it was to get investors at that time, as the investment [needed] was pretty high, around US$1.2 billion,” Ronald told an online webinar on May 31.
According to Ronald, the high financing need was justified by the significant added value from processing bauxite into alumina, before its final conversion into aluminum. This was unlike processing nickel, which resulted in several intermediate products before its final output.
However, another difference between bauxite and nickel smelters was that the latter offered a faster return on investment (ROI).
“Just as an example, the first line of WHW’s smelter has been operating for almost ten years, but [its ROI] has not happened yet, as there was a cost overrun due to a change in technology and other [factors],” Ronald explained.
The Energy and Mineral Resources Ministry admitted to the challenges in smelter development, mostly related to funding and electricity supply, Irwandy said. It had thus held a meeting with bauxite producers, local banks and state-owned electricity firm PLN over the matter, but the meeting did not result in any specific deals.
Ronald also said the latest export ban would affect not only the mining firms’ owners but also employees, who might be laid off due to production cuts. The policy would also affect contractors and suppliers, as well as any banks that had provided loans for procuring heavy equipment.
“Later, once the economic impact is felt and discussed in public, the government may allow exports again. Why do they bother [with a ban]?” he added.
He recalled that which he was still working for Harita Group in 2014, the firm had to lay off around 2,000 workers as a result of the bauxite export ban.
Call for pain relief
A. Rizqi Darsono, who heads Kadin’s permanent committee on minerals and coal, said the export ban could cost more than 1,000 jobs in the bauxite mining industry. Most of these layoffs would be in West Kalimantan, the country’s bauxite production center, as well as in Central Kalimantan and the Riau Islands.
“It’s impossible to continue mining when the product cannot be sold. Thus, [layoffs] will happen to minimize costs,” Rizqi told The Jakarta Post on Tuesday, though he was quick to point out that this was mere conjecture, and that he had not heard of any actual job cuts.
Rizqi added that the sector needed help in obtaining bank loans with affordable interest rates for smelter development.
In addition, the projected drop in bauxite demand due to the export ban would cause prices to plummet, so mining firms needed a price floor to “protect miners affected by this policy”, he said.