Vale and the Mining Industry Vision

IN the minds of most of the public in this country, which are called Trans-National Corporation (TNCs) in the mining sector, such as PT Vale Indonesia (INCO) or PT Freeport Indonesia, must be bad. The reason is clear, because it tends to be monopolistic, the orientation is profit-seeking and exploitative. Moreover, the existence of foreign companies is not in accordance with the mandate of the 1945 Constitution which states that strategic mining must be controlled by the state through state-owned companies.

However, on closer inspection, there is no monopoly if the state has regulations that can tame them. Many foreign companies obey the rules and have mining best practices that need to be a reference. In this paper, I try to take PT Vale Indonesia Tbk (Vale) as an example. Vale is a foreign company whose shareholders are global players, Vale Canada Limited (44.3 percent), Sumitomo Metal Mining (15 percent) and state-owned mining company, MIND ID (20 percent). Since operating in Indonesia in the 1970s, Vale has stood on the legal umbrella of Contract of Work (COW) which was created during the New Order era. Based on the CoW, nickel concessions granted by the Soeharto government reached nearly 6.6 million hectares stretching from Sorowako (South Sulawesi), Bahodopi (Central Sulawesi) to Pomala (Southeast Sulawesi).

It’s just that the concession that has been used is only 118,000 hectares. With the change in the mining regime from KK to a Special Mining Business Permit (IUPK) which is regulated in Law No. 3/2020 concerning Minerals and Coal, Vale is obliged to shrink the land. Vale itself has agreed to reduce its land to 70,000 hectares, including divesting 20 percent of its shares to MIND ID. In short, the guarantees provided by the state during the New Order era allowed corporations to monopolize land. After all, after the government changed the rules to a stricter direction, such as in the Minerba Law, foreign mining companies like Vale did not mind shrinking their land.

The next question is whether a foreign corporation like Vale does not have a vision for the mining industry or tends to be exploitative? Build a smelter for a long time The answer to this question, of course, must not be based on the assumption that all foreign corporations are destructive. It is necessary to study the corporation carefully and to see the progress of the corporation more carefully. The variables that can be used are, for example, how to manage the environment, community empowerment (community development ), good corporate governance , state revenue and the vision of building a mining industry in the country.

The vision of building the mining industry is closely related to the change in the mining paradigm from exploitative (dredging mining materials until they run out and selling them in raw form at low prices) to building a domestic nickel mineral processing plant (smelter) in order to provide a multiplier effect for national development. Even without the mining law’s order, corporations that pay attention to the future of the mining industry must build smelters from the moment they start operating. This is where it is important we make Vale a model. Before the Minerba Law (Law No. 4/2009 revised to Law No. 3/2020) was issued, Vale had long been building a nickel smelter in Sorowako, South Sulawesi with a production capacity of 72,000 matrix tons per year.

The price is, of course, almost a dozen times that of a mining company that only exports raw nickel ore abroad. The sale of raw nickel does not pay attention to good mining practices at all ; destructive and exploitative. The risk of selling raw nickel ore causes our minerals to be dredged out. Before the implementation of the Minerba Law, nickel ore exports were always above 40 million tons per year. Indonesia is the world’s largest net nickel exporter, which causes nickel in the global market to flood and prices to fall. During 2010-2014, we witnessed firsthand tons of raw ore being transported without supervision to dozens of foreign-flagged ships that dotted not far from the ports at various points in central and southeastern Sulawesi.

We are of course sad to see the delivery of this “land” being carried out day and night without stopping. If this continues, without waiting long, our nickel reserves will run out. In fact, the world is currently encouraging the development of electric cars whose raw material is from nickel. In addition, we need nickel to drive the development of stainless steel plants . The production of nickel ore in the upstream must be controlled so that mining materials do not run out quickly, destroying nature and forests. This can be done by building a domestic smelter. If mining companies in Indonesia have the same vision as Vale, which has since started its operation to build nickel smelters, I believe our mines will not be too exploitative.

Moreover, Indonesia’s position is very strategic in the world nickel market. Indonesia is the world’s largest nickel producer, or 27 percent of which contributes to world nickel. Even though we have large nickel resources, that doesn’t mean letting the reserves dredge up to the end. If it does not build a smelter, Indonesia will suffer losses, because state revenue is shrinking. President Jokowi when inaugurating a smelter factory in Morowali, Central Sulawesi, at the end of May 2015 compared the benefits obtained from shipments of raw ore which was only US $ 30 per metric ton compared to intermediate products which cost US $ 1,300 per metric ton.

The added value of mining materials when processed in a smelter factory is very large. If it is processed into nickel matte like Vale’s, the price will be 15-17 times the price of raw nickel ore. With high prices, corporations also benefit and state revenues from taxes and royalties are greater. Moreover, Indonesia is one step ahead of being a country selling raw mineral ore without processing. The world will give Indonesia the label as a country selling raw minerals without innovation power to build the mining industry for the future. Let’s go back to the Vale smelter factory. Vale refined nickel is called matte nickel. Nickel matte is used as stainless steel for the manufacture of stainless steel . Until now, Vale’s nickel matte production capacity has reached 72,000 matrix tons per year and will be increased to 90,000 matrix tons starting in 2021.

Vale will also invest trillions of rupiah in funds to build a first-class nickel factory in Bahodopi, Central Sulawesi. First-class nickel will be used as raw material for making batteries for electric vehicles or cars, which is being pushed by developed countries and the Indonesian government. Vale certainly has anticipated the trend and paradigm shift at the global level. Vale has also anticipated the Indonesian government’s strict policies. The government has officially closed the tap for mineral exports, a type of nickel since October 2020. This policy is supported by the new regulation of Law No. 3 of 2020 concerning Minerals and Coal (Minerba) which orders all mineral mines not to be exported. All mineral mining companies are obliged to build domestic smelter factories so that they have a multiplier effect on development.

The company is only given an allowance for mineral exports only until 2023, provided that it is obliged to report the progress of smelter construction. The Indonesian government’s policy of closing nickel exports earlier is a strategic step to secure upstream supplies (nickel ore) because this mineral is becoming a trend among developed countries, such as the United States, China and Europe, which are encouraging the development of electric cars from nickel. All domestic policies and good trends at the global level benefit nickel producers, such as Vale Indonesia, who are ready to welcome this new era because they have built a nickel smelter factory from the start. With the closing of the export tap, the next effect is that the price of nickel on the global market increases. So, Vale is one of the companies that is enjoying the benefits amid the Covid-19 pandemic.

It is not wrong if in the 2020 period INCO’s profit reached 82.82 million US dollars or equivalent to Rp 1.16 trillion (exchange rate of Rp 14,000 / US dollar), an increase of 44.28 percent compared to 2019 amounting to 57.40 million US dollars or equivalent. Rp. 804 billion. The increase in INCO’s profit is certainly inversely proportional to the stories of other mining companies that have suffered losses because they are no longer allowed to export raw mineral ores. By creating profits, it means that there is another foreign nickel company that can help save state revenues in the midst of a crisis. Vale is also one of the most compliant mining companies paying taxes and royalties to the state. When I checked the company’s financial statements for the past 5 years, I found no tax delays.

This company is indeed paying taxes in an orderly manner. In 2019, for example, the economic value distributed to the government in the form of tax and PNBP payments reached 129,029 million US dollars, an increase of 40.9 percent compared to 2018 of 91.6 million US dollars. This is an example for mining companies not to delay paying taxes, let alone pay tax officials to secure tax deferral bills of up to hundreds of billions. At this point, it is irrelevant for us to debate whether our mining operations are better managed by foreign companies or national private companies or state-owned companies. Both foreign and national private companies share inherent characteristics: capital accumulation, destroying nature and forests – if state officials are corrupt and the state is inconsistent with implementing regulations, such as the obligation to build smelters for all mining companies.

The state must stand as a fair umpire, distributing mining products for the welfare of the people. So how is Vale’s relationship with the community around the mine? Since Vale built the smelter, the city of Sorowako has become very busy. Thousands of national and local workers were recruited. Vale also gave priority to workers from surrounding areas, such as Malili, Lioka and Tabarano. The construction of this nickel smelter changed the face of Sorowako from an underdeveloped area to a developed area in South Sulawesi. It is bordered by Lake Matano with East Luwuk. Sorowako is a small, developed town, looking beautiful and calm.

This small town is nicely laid out on top of the ex-mining area. The ex-mining area has also been leveled and planted with trees so that it is very green. Within the city, Vale built an international class hospital. Even though there were disappointments, they were not as intense as the resistance of the Papuan people (Mimika) to the PT Freeport Indonesia mine. Post-mining anticipation Vale seems to have a good knowledge of the surrounding community.

Their way of empowering farming communities has also been different. Vale does not make cash donations to the public, because they think it will run out in one or two months. Vale’s approach is more to social development by recruiting 5-10 villagers to map village potential, in the form of nutmeg farming, marica to be given empowerment contributions. In my opinion, empowerment like this should be emulated by other mining companies, such as Freeport Indonesia or Amman Mineral (West Sumbawa).

This is important because mines are scarce, they run out quickly. The economic life of the Vale mine in Sorowako ( east blok and west blok ), for example, will be completed in 2037. If all this time, the people of Sorowako can get blessings from the Vale mine, post-mining in 2037 can no longer. So, it is necessary to anticipate how to think about the future of post-mining areas. Vale’s community empowerment is important to be used as a model by other companies in anticipation of the economy of the post-mining community.

This should not be taken lightly. This must be carefully considered by the company and the government. There are also no laws regulating this matter. In the revised mineral and coal law, the state only thinks about state revenue. But they don’t think about the fate of the post-mining community. For this reason, both the company and the central-regional government are obliged to think about the future of post-mining areas. We hope that Vale will continue to help empower the community around the mining