An Indonesian law banning the export of unprocessed minerals took effect yesterday, with the government aiming to boost local operations and create more jobs and mining companies warning of losses and layoffs.
Indonesian Coordinating Economic Minister Hatta Rajasa said that Indonesian President Susilo Bambang Yudhoyono signed the decree after a meeting of Cabinet members on Saturday. It followed days of intense negotiations involving government officials, entrepreneurs and experts to explore ways to minimize the impact of the ban.
The Indonesian Ministry of Finance ordered customs officials in seaports across the country to supervise all export activities to make sure no ores are shipped out beginning yesterday.
Rajasa did not mention any exemptions, but said the decision took into account concerns about preventing mass layoffs, promoting regional economic development and enabling local mining companies to continue operating. He added that a number of regulations will be issued by ministries regarding the implementation.
The ban was mandated by the Mining Law passed by the Indonesian parliament in 2009, which included a provision that mineral ores must be processed at smelters in Indonesia starting yesterday.
Mining companies, including PT Freeport Indonesia and PT Newmont Nusa Tenggara, have warned that they will have to lay off thousands of workers if the law was imposed without exemptions.
“If the ban on export is imposed on Jan. 12, Freeport will only be able to process 40 percent of its production,” said Daisy Primayanti, a spokeswoman for Freeport Indonesia, which operates a giant US-owned mine in Papua Province. “One of the impacts is a reduction in the number of employees.”
Indonesian Minister of Mines and Energy Jero Wacik said that government departments will soon issue regulations detailing provisions of the ban, including export tax rates and the minimum level of concentrate allowed for exports.
The ministry has proposed a three-year exemption that would allow companies to export unprocessed minerals until 2017 provided they make a commitment to build their smelters in Indonesia. It was intended to protect hundreds of small mining companies from going out of business.
Indonesian Minister of Industry M.S. Hidayat said that companies are still allowed to export concentrates of certain purification level until 2017, but they have to pay an export tax.
“We will impose the progressive export tax, which means the higher the purification level, the lower export tax,” Hidayat said.
Marius Toime, a partner at the international law firm Berwin Leighton Paisner, said that the law might cause other problems because it would reduce revenues from export taxes, which in turn may result in a widening current account deficit for the government.
“This deficit, combined with the legal uncertainty around the ban’s ramifications, has already undermined investor confidence,” Toime said.
He added that it is not economically feasible for small Indonesian mining companies to develop refining capacity.
The government has estimated that the ban will cut government revenue by about 10 trillion rupiah (US$833 million) this year due to declines in export taxes and royalties.