14 June 2022 (closed)
Jakarta Composite Index (7,049.88) +54.44 +0.78%
USD/IDR (14,146) -6.00 -0.04%
EUR/IDR (17,335) +57.05 +0.33%
The Indonesian government seems to abandon or delay its policy of banning mineral ore exports from 2017 onward. In January 2014 the ban on exports of raw minerals, part of the 2009 Mining Law, came into effect. However, due to the lack of domestic processing facilities the government allowed the resumption of certain concentrate exports (such as copper concentrate) provided the miner would be committed to the construction of smelting facilities, and pay higher taxes and royalties. The export ban was highly controversial as it conflicted with existing contracts and therefore caused outrage in Indonesia's mining industry.
However, the abandonment of the controversial ban would even be more controversial (and undermines the government's credibility in terms of policy making) as several miners have - reluctantly - started to construct smelting facilities in order to comply with new rules. Examples are Freeport Indonesia and Newmont Nusa Tenggara that both agreed to re-negotiations of existing contracts in order to safeguard future extensions of their mining contracts. Both companies initially objected to the ban on exports of mineral ore as this was not in line with their existing Contracts of Work. Freeport Indonesia is now in the early stage of developing a USD $2.3 billion copper smelter in Gresik (East Java).
Sudirman Said, Indonesian Minister of Energy and Mineral Resources, said the government is currently discussing the effects of cancelling or delaying the full implementation of the mineral ore export ban. Other sides that are involved in these discussions are Universitas Indonesia and the Association of Indonesian Mining Professionals (Perhapi).
The government has started to become reluctant to implement the full ban in 2017 as there is a lack of a sufficient number of smelting facilities. Amid low commodity prices part of Indonesian miners decided to postpone the investment in costly smelting facilities. If the ban would be implemented in full force it would imply a huge revenue loss, both for miners (thus having fewer capital to invest in smelters) and the government (as tax and non-tax revenue from the mining sector declined).
A possibility is that the Indonesian government decides to continue its quest for domestic smelting facilities - in order to boost Indonesia's downstream industries and enhance output of mining products higher up in the value chain - but without stipulating a deadline for the establishment of these smelters.
However, there are also voices that claim existing smelters in Indonesia (or those that will be ready for operations soon) will not have enough raw materials in case the government cancels or delays full implementation of the mineral ore export ban as miners will be more interested to sell their mining output abroad.
You said it- "The export ban was highly controversial as it conflicted with existing contracts and therefore caused outrage in Indonesia's mining industry."
If Indonesia breaks contracts by making new laws then no company can make a contract with the Indonesian government. Indonesia does not honor contracts!