Softer Rules but Unclarity Remains about Indonesia's Ore Export Ban
On Sunday (12/01), one of the most important new laws in the recent history of Indonesia came in force. Mining Law Nr.4/2009, which prohibits the export of unprocessed minerals from Southeast Asia's largest economy, was implemented. However, it was not implemented in its original form. The president of Indonesia, Susilo Bambang Yudhoyono, signed a last-minute regulation which softens the impact of the new law by allowing mining companies to continue exports of copper, manganese, zinc, lead and iron ore concentrate until 2017.
This temporary exemption is good news for miners such as Freeport Indonesia (operating the Grasberg mine in Papua which is the world's largest gold mine and third-largest copper mine) and Newmont Nusa Tenggara that together export billions of dollars worth of copper to overseas destinations. These mining companies are now allowed to export processed minerals provided that they start building smelters soon. Moreover, these exports will be the target of new and higher taxes up to 2017 when the export ban will be fully implemented. Raw ore, however, is completely forbidden for exports starting from the morning of Sunday 12 January 2014.
The Indonesian government decided to design Mining Law Nr.4/2009 as it will lead to more added-value exports (and revenues) as minerals need to be processed domestically first. The downside of the new law is that it is expected to cause limited revenue on the short-term as mining companies are forced to cut back on operations as domestic smelting capacity is not sufficient yet. Indonesia's Finance Minister Chatib Basri estimates that IDR 10 trillion (USD $820 million) is missed due to lost royalty payments and export taxes. This then impacts negatively on the country's current account deficit which has been a serious problem in recent years and only started to ease in the last three quarters (to about 3 percent of Indonesia's gross domestic product at end-2013). Another negative impact is that the ban will lead to an increase in the country's unemployment rate. The Indonesian Mineral Entrepreneurs Association (Apemindo) recently stated that almost 30,000 mine workers have been laid off ahead of the implementation of the new mining law. This amount may reach up to two million people. Particularly the smaller mining companies with low profit margins and no smelting capacity are impacted by the export ban.
Mineral shipments from Indonesia, which is the world’s largest exporter of nickel ore, refined tin and thermal coal (although this latter remains unaffected by the new mining law), totaled USD $10.4 billion in 2012 according to the World Bank. This amount is equivalent to about 5 percent of Indonesia’s total exports.
Participants in Indonesia's mining industry complain that there is still much uncertainty and unclarity about Yudhoyono's last-minute revision to the mining law as the government is yet to release a number of details, such as the level of concentrate that is temporarily allowed to be exported.