Indonesia Braces For Impact of Mineral Export Ban

Indonesia Braces For Impact of Mineral Export Ban

By Rieka Rahadiana & Randy Fabi on 9:10 pm January 10, 2014.
Indonesia’s government was scrambling to pass last-minute regulations to limit the impact of a controversial ban that could halt billions of dollars worth of unprocessed mineral ore exports from Sunday.The Southeast Asian nation is the world’s biggest exporter of nickel ore, refined tin and thermal coal and home to the fifth largest copper mine and top gold mine. Mineral shipments totalled $10.4 billion in 2012, or around 5 percent of Indonesia’s total exports, according to the World Bank.

All mineral unprocessed ore exports are to be banned from Sunday.

The ban aims to boost Indonesia’s long-term returns from its mineral wealth, but officials fear a short-term cut in foreign revenue could widen the current account deficit, which has undermined investor confidence and battered the rupiah currency.

Despite having more than five years to prepare for the mining law, officials just days ahead of the ban were rushing to try to soften the potential blow of the new policies.

“The government of Indonesia will still implement the mining law consistently. But we also want to make sure its effect won’t be too troublesome and lead to the laying off of workers,” said Susilo Siswoutomo, vice minister of the energy and mines ministry.

Mining companies, such as Freeport McMoRan Copper & Gold , have been ramping up shipments ahead of Sunday’s deadline, uncertain whether they will be able to continue after that.

“We are still on to ship through January 11. Obviously, the only thing we will try is to maximize our shipments,” said Daisy Primayanti, spokeswoman for Freeport Indonesia.

The mining ministry has approved regulations that would allow Freeport, Newmont Mining Corp and others to continue to ship copper, manganese, lead, zinc and iron ore concentrate until 2017.

But nickel ore and bauxite exports worth more than $2 billion annually would still be banned from Sunday, while coal and tin shipments would not be affected.

“We have been preparing two trade ministerial regulations on the ore export ban — one is about the procedure for processed and refined ore exports and the other one is about the ore export ban itself,” said Bachrul Chairi, director general of foreign trade at the trade ministry.

The regulations could still be tweaked and must be approved by President Susilo Bambang Yudhoyono, who is facing one of his biggest economic policy decisions in his nearly 10 years in office.

Adding to the uncertainty, the Supreme Court recently struck down regulations passed in 2012 concerning the implementation of the mining law. That could open the way for more legal challenges should the president pass new regulations easing the impact of the 2009 mining law requiring all mineral ore be processed in Indonesia from Sunday.

Financial hit

Even if the president approves the changes, Southeast Asia’s largest economy will still take a financial hit.

Finance Minister Chatib Basri told reporters the proposed regulation would still cut government revenue by as much as 10 trillion rupiah ($820.34 million) this year due to lost royalty payments and export taxes.

The central bank also said there would be an economic impact but that the ban would pay dividends in the long run.

“We will keep a close eye on how it develops and will discuss its impact on Indonesia’s economy,” Agus Martowardojo told reporters on Thursday shortly after announcing the central bank would keep its benchmark interest rate unchanged at 7.50 percent.

Any major economic impact could make the ban a hot political issue in this year’s legislative and presidential elections, especially if it sparks a wave of layoffs throughout the world’s fourth most populous country.

Thousands of mine workers have already been laid off as more than 100 junior miners halt operations ahead of the ban.

Freeport, the country’s dominant copper producer with 73 percent market share, last month warned an unrevised ban would cut output at its Grasberg mine by 60 percent and lead to layoffs of half of its 15,000 Indonesia employees.