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Politics

Indonesia eases ban on mineral exports

Foreign, domestic producers given different treatment

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Mine workers at a Grasberg mine in Tembagapura, Indonesia.   © Reuters

JAKARTA -- Indonesia's Energy and Mineral Resources Ministry on Thursday announced sweeping changes to mining regulations that allow exports of nickel ore and bauxite for another five years under certain conditions.

The announcement illustrates the challenges facing the resource-rich country, which instituted a ban on mineral ore exports from January 2014 in an effort to develop a local processing industry. Amid uncertainty over global commodity markets, nickel prices on the London Metal Exchange fell 4% on Thursday.

Miners can export ore with a nickel content of less than 1.7% if they use 30% of their smelting capacity for processing, according to the new regulations. Meanwhile, washed bauxite with aluminum oxide content of at least 42% can be exported if the producer has or is building a smelter in the country.

"Why has the government made these decisions? To increase state revenue, to create better jobs for the people, to prevent job cuts," Energy Minister Ignasius Jonan said in announcing the new policy.

State-owned miner Aneka Tambang, whose profit over the past few years has been hit hard by the export ban and falling commodity prices, may be able to resume exports of one of its main products, nickel ore. "Regional economies will grow, [and] mining areas that died because of the export ban can grow again," Antam CEO Tedy Badrujaman told Reuters.

But the Indonesian Smelter Association immediately protested the new rules. Deputy Chairman Jonatan Handojo told the Nikkei Asian Review that the rules violate the mining law and are a "setback" to ongoing investment in the domestic smelting industry.

"This is something we completely didn't expect. What kind of country is this?" Handojo said. "How come they issue new regulations after money has been pouring into Indonesia [for smelter development] ? The total investment is around $20 billion."

Meanwhile, the regulation requires foreign miners to hold mining permits to continue exporting copper concentrate and other intermediaries for five more years. Some of the country's biggest foreign miners, including the local unit of U.S. mining giant Freeport-McMoRan, still hold old contracts and will be banned from exporting concentrates until granted a mining permit, according to the regulations.

In addition to building a smelter, foreign mining permit holders must divest 51% of their stake in a mine to the government or local companies -- state-owned or private. The regulations detail gradual divestment stages that must be completed within 10 years after a miner begins production under the new scheme.

Jonan said the 51% divestment rule is to comply with the constitution, which states that natural resources must be controlled by the state for the utmost benefit to the people.

"Exports of concentrates, metals in any form are allowed as long as [miners] replace their work contracts," the minister added. "They also must write a commitment to completing the construction of a smelter in five years."

The government will closely monitor the progress of smelter construction during the five years. Export permits will be revoked in cases of poor progress.

A new regulation also allowed Freeport, which owns a stake in the country's only copper smelter, to renegotiate its permit extension 5 years before expiration, compared to the previous 2 years. Freeport has said it plans to invest more than $2 billion in a new larger smelter, though in exchange it demanded that the government extend its contract for the Grasberg operation.

The energy ministry has also proposed an export tax of 10% to replace the current 5%. The hike will be subject to the Finance Ministry's approval.

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