Indonesia’s mineral ban unearths economic danger

Analysts fear the newly imposed restriction on mineral exports will not only hurt the industry, but the whole economy, as its chaotic conception and implementation turn investors off the country

By Olivia Rondonuwu  /  AFP, JAKARTA

Sun, Jan 19, 2014 - Page 14

A drawn-out row between the Indonesian government and the mining industry over a mineral export ban has added to the growing uncertainty in Southeast Asia’s top economy ahead of elections, observers warn.

The ban on the export of unprocessed mineral ores from resource-rich Indonesia came into effect last Sunday after ministers agreed at the 11th hour to concessions following sustained lobbying by domestic and foreign miners.

The government had originally proposed a blanket ban on the export of certain raw minerals, but the revised version does not cover concentrates for the time being, allowing US giants Freeport McMoRan Copper & Gold Inc and Newmont Mining Corp to continue to export from their huge copper mines in the country.

Despite the last-minute tweaks, the industry is still set to suffer as exports of key unprocessed ores, notably nickel and bauxite, have been banned and even minerals granted concessions will be hit with higher taxes.

While there was relief that the policy was not as restrictive as initially feared, the run-up to the ban has been criticized as highly chaotic, affirming the image of Indonesia as a notoriously difficult place to do business.

Jakarta-based lawyer Bill Sullivan, a mining expert, said the process highlighted “the shameful failure of government policymaking” in Indonesia.

“This past year has been quite extraordinary — the number of regulatory and policy changes, the complete disregard of the interests of foreign investors. It’s just made it so hard for foreign investors to justify putting money into Indonesia,” he added.

The export ban is one of a series of policies for sectors ranging from banking to energy promoted by nationalist politicians who argue that Indonesia should do more to stop foreigners reaping all the benefits from business opportunities in the fast-growing economy.

The trend toward such nationalistic policies has intensified recently, as politicians seek to win votes before parliamentary elections in April and presidential polls in July, observers say.

The export ban was first announced as part of a 2009 mining law. It obliges miners to build smelters in Indonesia to process mineral ore to high levels of purity in an effort to keep more of the profits from the lucrative industry in the country.

Its implementation was delayed until this year to give miners time to build smelters. However, many miners took little action, betting that Jakarta — notorious for backtracking on policies — would not push through a ban that could cost the government vast amounts in tax revenues and lead to huge layoffs.

In the event, the government did water down the policy following warnings of widespread job losses and closures in the industry, but even that was only finally decided an hour before the ban took effect and there is still confusion over the policy several days after it was implemented, with the government yet to release all the details.

Even after the concessions, critics say the problem has only been kicked down the road. The blanket ban on mineral ore exports has simply been delayed to 2017 and the threat of new taxes is looming.

While miners such as Freeport can export so-called “concentrates” — partially processed ore — of certain minerals such as copper, they face higher export taxes that will increase to up to 60 percent in coming years.

Freeport is liable to pay almost US$1 billion this year and the amount could rise to just below US$5 billion in 2016 due to the new taxes, an industry source who declined to be identified said.

The bans impact could also be devastating for nickel and bauxite miners.

Siswo Awaliyanto, from bauxite producer Harita Prima Abadi Mineral, told reporters that the firm would cut production by up to half this year, had closed one its three sites and was mulling laying off at least 25 percent of its 1,600 workers.

Despite the industry’s concerns, the Indonesian government sees the ore export ban as a sensible policy to keep more profits from the mining industry at home.

“I went to China recently and there I witnessed very high piles of bauxite — 3 million tonnes — piled up on the coast, all raw exports from Indonesia,” Indonesian Minister of Industry MS Hidayat said. “This is what we want to stop.”

However, for many miners, the Indonesian government’s approach remains misguided.

Mansur Geiger, from a copper and gold exploration firm on the Indonesian part of Borneo, said at a recent protest in Jakarta against the ban that “everyone supports the grand mission of adding value to natural resources.”

However, he added that: “We’ve seen no blueprint” for the government’s long-term plans.