Playing an important role as a catalyst for other manufacturing industries, Indonesia's mining industry makes a highly strategic contribution to the national economy.[1] With this goal in mind, the government has been diligent as regards the introduction of improvements to this vital sector. An excellent example of this attentiveness was the enactment of Law No. 4 of 2009 on Minerals and Coal Mining (“Mining Law”), which repealed and replaced the already obsolete Law No. 11 of 1967 on General Provisions for Mining.
 
With the ultimate goal in mind of optimizing the potential of the mining industry, the Mining Law ended up revising many of the provisions set out under the previous framework, including the obligations to process and purify mining products within Indonesia in order to increase the added value of any mining products produced, to ensure the availability of mining products for domestic needs, to provide new job opportunities through the establishment of new companies and, in the long run, to boost state revenues.[2]
 
This obligation to process and purify minerals within Indonesia – which is to be realized through the construction and establishment of smelters – is applicable to all holders of Mining Permits (Izin Usaha Pertambangan - “IUP”) for Production Operations, and Special IUPs (IUP Khusus – “IUPK”) for Production Operations.[3] Additionally, parties to contract of work (kontrak karya) are also subject to the aforementioned obligation which, in terms of legislation, was supposed to come into force in January of 2014.[4]
 
The reality of the situation however was that the five-year preparation/transition period extended to the mining industry was used to rampantly maximize their export activities instead of to build smelters. Thus, within three years of the Mining Law being issued, the export of raw mining products had increased dramatically, ultimately generating more environmental problems for the country than it has economic benefits.[5]
 
At the end of the day, what the government completely neglected to take into account when implementing this five year preparation period was to conduct any reality checks as regards the actual situation on the ground. Indeed, the Indonesian Association of Mineral Entrepreneurs (Asosiasi Pengusaha Mineral Indonesia) decreed that it would be impossible to build a smelter in just five years, as such projects usually take at least nine years to bring to completion.[6]
 
As a result of this reality check, the government ended up extending the original five-year deadline to January 2017 through the issuance of Ministry of Energy and Mineral Resources (“ESDM”) Regulation No. 1 of 2014 on Increasing the Added Value of Minerals Through Domestic Processing and Purification,[7] as amended by Regulation No. 8 of 2015[8] (“1/2014 ESDM Regulation”).
 
Currently, as this deadline draws ever nearer, an increasing number of mining businesses are showing a willingness to comply with their obligations.[9] Nevertheless, many mining businesses remain pessimistic as regards the possibility of being able to operate their own smelters by 2017. Moreover, large-scale smelters are seen as problematic, as the sizeable investment needed in order to undertake this kind of project requires much time and effort to secure.[10]
 
Aside from the huge investments required, mining businesses are also experiencing problems as regards obtaining the necessary licensing in order to be able to construct smelters, as the Ministry of ESDM and the Ministry of Industry are both claiming authority over this domain. Moreover, a discourse has been initiated by the Indonesian Investment Coordinating Board (Badan Koordinasi Penanaman Modal – “BKPM”) which has concluded that the BKPM will ultimately have the authority to issue licenses for the erecting of any smelters. To date, this issue remains unresolved and no specific regulation covering the organization of such matters has yet been issued.[11]