Indonesia Asahan Aluminium president Budi Gunadi Sadikin, second left, with the presidents of three new mining subsidiaries after a Jakarta news conference © Wataru Suzuki
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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 on November 29, they had opened a new chapter in the country’s efforts to revitalise the mining sector.
Indonesia Asahan Aluminium, a state-owned aluminium refiner known as Inalum, was transformed into a holding company controlling nonferrous metal producer Aneka Tambang, coal company Bukit Asam and tin miner Timah. The government’s 65 per cent stake in each of the three listed companies was transferred to Inalum. The remaining shares remain publicly traded.
The shift is designed to create a national mining champion to compete with global groups such as 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’s president in September, wore a bright pink and violet traditional batik shirt and handled the questions cheerfully, while his three new deputies in black suits waited for his orders.
“We, the four musketeers,” Mr Sadikin joked, “can hopefully carry the duty of bringing Indonesia’s mining industry on par with the big companies in the world.”
This article is from the Nikkei Asian Review, a global publication with a uniquely Asian perspective on politics, the economy, business and international affairs. Our own correspondents and outside commentators from around the world share their perspectives on Asia, while our Asia300 section provides in-depth coverage of 300 of the biggest and fastest-growing listed companies from 11 economies outside Japan.
In reality, Inalum remains far behind its global peers even after consolidating the three miners. Total revenue is about $2.7bn, based on 2016 figures, only slightly more than Adaro Energy, a large local coal miner. Rio Tinto and BHP Billiton each reported more than $30bn in revenue last year.
Inalum’s first major task involves taking over the operations of a giant copper and gold mine in the eastern province of Papua from US miner Freeport-McMoRan. Inalum hopes to increase its ownership in the local operator, Freeport Indonesia, from 9.36 per cent to 51 per cent, after just recently receiving its initial stake from the government.
Mr Sadikin said “progress is good” in 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 saying when this might happen.
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 significant 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.
Mr Sadikin said the new holding structure would allow the four companies better to combine their forces on investments and operations. Bukit Asam, for example, may develop power plants to supply electricity to 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, Mr Sadikin said, would also allow the company to develop a precious metals refinery to process gold, which can be produced along with copper at the Papua mine.
The holding structure will serve as a litmus test for a broader reform of Indonesia’s state-owned enterprises. Most SOEs operate independently, resulting in unnecessary investments and inefficiencies. The number of such enterprises, including subsidiaries, has ballooned to about 800, and many are unprofitable.
“Why do we have so many grandkids and great-grandkids doing the same business?” Rini Soemarno, the minister of state-owned enterprises, asked in October. “Now we have to consolidate them so that their businesses are more efficient.”
A ferronickel plant operated by Aneka Tambang in Pomalaa, Southeast Sulawesi © Bobby Nugroho
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 version of this article was first published by the Nikkei Asian Review on November 30. ©2017 Nikkei Inc. All rights reserved.
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