Indonesia’s Mineral Ore Export Ban Takes Effect
Indonesia, one of world’s largest mineral resource suppliers, has instituted a ban on the export of certain raw minerals/unprocessed mineral ore including bauxite, nickel, tin, chromium, gold and silver.
Despite strong opposition from both foreign and domestic miners and the potentially detrimental impact on Indonesia’s own revenue streams, President Susilo Bambang Yudhoyono signed off on the ban over the weekend and it commenced at 12am (Indonesian time) on Sunday, 12 January 2014. The ban is mandated under the Indonesian Mining Law passed by the Parliament in 2009, which included a provision that mineral ores must be processed at smelters in Indonesia from 12 January 2014.
It is understood that after significant lobbying against what was originally proposed as a blanket ban on all mineral exports, last minute amendments were made over the weekend to exclude copper, iron ore, lead and zinc concentrates exported by 66 companies including U.S. mining giants, Freeport McMoRan Copper & Gold (Freeport) and Newmont Mining Corp, who together produce approximately 97 percent of Indonesia’s copper. The exemptions are also likely to reduce any negative impact on Indonesia’s own foreign revenue.
The 66 companies will be able to export the concentrates for the next 3 years, however, based on preliminary information about the Indonesian export regulations, that right is conditional upon an agreed level of investment in domestic processing infrastructure by 2017.
Regardless of the exclusions, Indonesian’s shift in export policy is likely to have global ramifications and stands to threaten its own nickel and bauxite industries whose shipments are worth more than $2 billion annually. Similarly, the global nickel and bauxite industries and, in particular, Chinese steel and aluminium factories that make everything from kitchenware to cars and building components may suffer and find supply costs increase. Australia has significant bauxite (which is the initial raw mineral used in aluminium production) reserves in Queensland, Western Australia and the Northern Territory and so miners of the commodity could benefit.
It is understood that the rationale for the ban is to promote domestic processing and motivate infrastructure investment in Indonesia’s lucrative resources industry, creating more local jobs and ensuring profits stay (ie are taxed and/or reinvested) in Indonesia. However, there is concern that the nationalistic policy may lead to mine closures and consequent job losses as well as drain Indonesia’s finances through lost royalties and taxes.
While the exact details are yet to be released, under the regulations, miners may be obliged to invest in infrastructure and build smelters by 2017, which some in the industry have indicated may be economically unviable.
The Indonesian government is expected to reveal more precise details of the revised export ban and related regulations in coming days, however some immediate impacts are already showing and include:
- Freeport, Indonesia’s dominant copper producer with 73 percent market share, has not made a shipment from its remote Papua port since mid December 2013 and it is reported that more than 100 mining companies have either reduced or shut down their operations due to the uncertainty of the proposed bans.
- 1000s of mine workers have already been laid off ahead of the ban, sparking protests in Jakarta.
- The National Mine Workers Union is encouraging mining workers to protest against the export ban and regulation and it is reported that Indonesian police have been stationed at ports and around mines.
- The Indonesian Mineral Entrepreneurs Association has indicated that it plans to challenge the ban in the Supreme Court and Constitutional Court, the two highest courts in the country.
It is expected that the country’s resources export policy will be a hot political topic ahead of Indonesia’s forthcoming legislative and presidential elections to be held later this year.
If you require any further advice or assistance in understanding the Indonesian export ban and regulations, please contact GRT Lawyers on +61 7 3309 7000.
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