JAKARTA -- The day began with dozens of Indonesian government officials and state mining executives shuffling in and out of marathon meetings at one of Jakarta's oldest hotels. By late afternoon Wednesday, they had opened a new chapter in the country's efforts to revitalize the mining sector.
Indonesia Asahan Aluminium, a state-owned aluminum refiner known as Inalum, was transformed into a holding company that controls nonferrous metal producer Aneka Tambang, coal company Bukit Asam and tin miner Timah. The government's 65% stake in each of the three listed companies has been transferred to Inalum. The remaining shares will remain publicly traded.
The shift is designed to create a national mining champion that can compete with global giants like Rio Tinto and BHP Billiton. The news conference that followed the deal offered an early glimpse of how the strategy will play out. Budi Gunadi Sadikin, a former banking executive who was appointed as Inalum president in September, wore a bright pink and violet traditional batik shirt and handled the questions cheerfully while his three new deputies wrapped in black suits waited for his orders.
"We, the four musketeers," Sadikin joked, "can hopefully carry the duty of bringing Indonesia's mining industry on par with the big companies in the world."
In reality, Inalum remains far behind its global peers even after consolidating the three miners. Total revenue is around $2.7 billion, based on 2016 figures, only slightly higher than Adaro Energy, a major local coal miner. Rio Tinto and BHP Billiton each reported more than $30 billion in revenue last year.
The first major task upon joining the big leagues involves taking over the operations of a giant copper and gold mine in the eastern province of Papua from U.S. miner Freeport-McMoRan. Inalum seeks to increase its ownership in the local operator, Freeport Indonesia, from 9.36% to 51%, after just recently receiving the stake from the government.
Sadikin said the "progress is good" regarding negotiations between the government and Freeport over the price and timing of a deal. "Hopefully, we can add another sibling so there will be five of us," he said, without mentioning a specific timeline.
The open-pit mine at Freeport's Grasberg copper and gold mine complex near Timika, Indonesia. © Antara Foto/Reuters
The open-pit mine at Freeport's Grasberg copper and gold mine complex near Timika, Indonesia. © Antara Foto/Reuters
Giving the state-owned enterprise a tighter grip on the mineral resources sector is Indonesia's latest effort to add value to its mining industry, a policy that has hit numerous roadblocks. To promote the country's downstream industry, the government introduced a controversial export ban on most raw minerals in January 2014, prompting a flood of investment in nickel smelters, mainly from Chinese investors.
The ban, however, caused major losses at Aneka Tambang, or Antam, which had relied heavily on nickel ore exports. The rest of the world showed little interest in building smelters. Indonesia partially reversed the ban in January by enabling Antam to export low-grade nickel ores.
Sadikin said the new holding structure will let the four companies combine forces better on investments and operations. Bukit Asam, for example, can develop power plants to electrify smelters that Antam and Inalum plan to build. Antam is set to expand its ferronickel production capacity and eventually build a stainless steel factory.
In turn, Antam can use its exploration know-how to support Timah in discovering new tin fields. Acquiring the Freeport unit, Sadikin said, also will let the company develop a precious metals refinery to process gold, which can be produced along with copper at the Papua mine.
Rini Soemarno serves as Indonesia's minister of state-owned enterprises. © Reuters
The holding structure will serve as a litmus test for a broader reform in Indonesia's SOE sector. Most state-owned enterprises operate independently, resulting in unnecessary investments and inefficiencies. The number of these enterprises, including subsidiaries, has ballooned to about 800 companies, and many of them are unprofitable.
"Why do we have so many grandkids and great-grandkids doing the same business?" Rini Soemarno, the minister of state-owned enterprises, said in October. "Now we have to consolidate them so that their businesses are more efficient."
The government plans to create a total of six holding companies by 2019 covering sectors such as banking, energy and construction. But with Indonesia's presidential election looming in April 2019, some analysts say reform efforts are likely to slow down next year.
"Will it happen before the election? It looks like mining is the only one that can happen," said Brian Grieser, senior credit officer at credit rating agency Moody's Investors Service in Singapore. "We think it would take time."
Erwida Maulia in Jakarta contributed to this story
A ferronickel plant operated by Aneka Tambang in Pomalaa, Southeast Sulawesi, in July 2015 (photo by Bobby Nugroho)
A ferronickel plant operated by Aneka Tambang in Pomalaa, Southeast Sulawesi, in July 2015 (photo by Bobby Nugroho)
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