ABI flags HGU-IUP overlap as key obstacle to bauxite reserves

By Cepi Setiadi

Indonesian Bauxite Association (ABI) said Indonesia’s bauxite industry is facing not only limited approvals for Work Plan and Budget (RKAB) production quotas, but also structural challenges stemming from overlapping mining permit areas (IUP) and plantation land cultivation rights permits (HGU).

ABI Chairman Ronald Sulistyanto said Indonesia has substantial bauxite reserves estimated at around 1.6 billion tons. However, most of the reserves are located in areas overlapping with plantation estates, particularly in West Kalimantan, Central Kalimantan, and Riau.

 “Nearly 90% of the reserves overlap with plantation areas that already hold HGU permits. So having an IUP does not automatically mean the area can be directly mined,” Ronald told Petromindo.com in a recent interview.

According to Ronald, mining companies must pursue business-to-business arrangements with HGU holders to gain access to mining areas. In practice, however, negotiations are often difficult because both sides claim legal rights over the land.

 “At the moment, there is a clash between two legal instruments, namely HGU and IUP. This is what needs to be reorganized,” he said.

Aside from licensing and land-use issues, ABI also raised concerns over the Mineral Benchmark Price (HPM) mechanism used as the basis for royalty payments and tax obligations. Ronald said that in some cases, actual bauxite transaction prices are lower than the HPM set by the government, while royalty payments still refer to the benchmark price. He cited bauxite with 47% alumina (Al) content as an example, where the HPM can reach around US$51 per ton, while the actual market price is only about US$40 per ton.

 “Royalties are still paid based on the HPM, not the actual transaction price. This is one of the key concerns among upstream mining players,” he said.

Read also : Indonesia’s bauxite industry still struggling to advance downstream development

Ronald added that the situation has further squeezed miners’ margins, especially as the HPM also serves as a reference for various other obligations, including taxation.

Despite these challenges, ABI believes the outlook for Indonesia’s downstream bauxite industry remains promising. Based on projections from several institutions, around 13 new alumina refinery projects are planned over the next 10 years.

Ronald said alumina refinery expansion remains realistic as long as the government can improve governance and harmonization between HGU and IUP holders. “It is very realistic. There is nothing to worry about as long as the regulatory framework can be properly synchronized,” he said.

ABI also urged the government to maintain policy consistency and ensure regulatory harmonization in order to avoid creating uncertainty for investors. Ronald said business players do not object to regulatory changes as long as they are aimed at improving the competitiveness of the national industry. However, he warned that overly frequent and inconsistent policy changes could weaken the investment climate.

 “If regulations are made consistently and can support the overall investment ecosystem in Indonesia, I believe the industry can grow much further. But regulations should not be changed before the ink has even dried,” he said.

He added that policymakers need to be more careful in formulating regulations so as not to undermine the upstream mining sector, which forms the foundation of the country’s downstream industrialization strategy.

 “If upstream miners are wiped out, the entire downstream production cycle could collapse. Once miners are shut down, it is not easy for them to come back because the investment required is enormous,” he said.

Editing by Reiner Simanjuntak