Indonesia's law on ore exports takes effect

1/11/2014

JAKARTA, Indonesia — An Indonesian law banning the export of unprocessed minerals took effect Sunday.

Coordinating Economic Minister Hatta Rajasa said the export ban is intended to add value to mineral exports by having them processed in Indonesia and create more jobs.

The announcement that the law would take effect came late today following days of intense negotiations involving government officials, entrepreneurs and experts to explore ways to minimize the impact of the ban.

“The President has signed a decree stipulating that beginning Jan. 12, all raw mineral or ores are banned from being exported,” Rajasa said after a limited cabinet meeting led by President Susilo Bambang Yudhoyono at his private residence in the southern outskirts of the capital Jakarta.

He 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 related ministries regarding implementing the ban.

The ban is mandated by a Mining Law passed by Parliament in 2009 which included a provision that mineral ores must be processed at smelters in Indonesia starting on Jan. 12, 2014.

Mining companies, including PT Freeport Indonesia and PT Newmont Nusa Tenggara, have warned that they will have to lay off thousands of their 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 spokesman for Freeport Indonesia, which operates a giant U.S.-owned mine in Indonesia’s Papua Province. “One of the impacts is a reduction in the number of employees.”

Minister of Mines and Energy Jero Wacik said related ministries 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.

Marius Toime, a partner at the international law firm Berwin Leighton Paisner, said the law might cause other problems because it would reduce revenues from export taxes which 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 ($833 million) this year due to declines in export taxes and royalties.