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The government of Indonesia will relax next year its ban on partially processed minerals exports, including copper, nickel, zinc and bauxite ore order to prop up its economy.
According to the country’s mining minister Sudirman Said, the review of the metal exports rule is part of a wider revision of the 2009 mining law that led to the export edicts and other regulations, Reuters reports.
Indonesia imposed the polemic ban on metal ore exports in early 2014, in an attempt to improve returns on resources shipped out of the country by developing smelters that would add value to resources and create jobs.
But the curbs cost billions of dollars in lost revenue to the nation, which is southeast Asia’s largest economy and — at the time — a top nickel ore exporter and a major supplier of bauxite.
The ban has also been a bone of contention between the government and companies operating in the country, which include Phoenix-based Freeport-McMoRan Copper & Gold (NYSE:FCX) who operates the world’s fourth largest copper mine at Grasberg in the West Papua province, and Denver’s Newmont Mining Corp. (NYSE:NEM). Together the two U.S. miners account for 97% of Indonesia’s copper exports.
The withdrawal of the ban would be a serious setback for these companies, as they were forced — against their will and existing contracts — to comply with the regulation and to develop smelting facilities.
2 Comments
geosteff
Any nation that wants to include downstream processing of commodities will set itself up for continued prosperity. As long as the governments and mining corporations can jointly set up adequate legal and physical infrastructure to promote refining and manufacturing, mining companies will enhance their social license to operate and ultimate long term profitability. Their are 2 possible issues that have made the Indonesian scenario more difficult for all parties: 1. Neither the large mining companies or the government made plans to develop smelters when starting up operations 15-20 years ago; 2. The Indonesian government acted hastily in an unrealistic manner by imposing a ban on unrefined products. It’s a lesson all large mining corporations should learn when operating in under-developed nations. If any one of the iron ore majors had set up a coastal steelworks in the Gulf of Guinea region in Africa already, there would be flourishing iron mines operating in at at least one or 2 of the surrounding nations (RoC, Gabon, Cameroon, Nigeria? Guinea?). Having worked in the DRC and seen how that no value is added to unrefined copper matte and cobalt for the past 50+ years since independence, it is not hard to understand why such countries remain poor. Now the cost and risks of setting up or restoring adequate electricity, rail and other infrastructure in an environment of low commodity prices, impatient investors, political instability, a poverty-mindset and self-centred government deter potential investors. We have to learn to “strike while the iron is hot” and look beyond the next dividend. Ask Rio Tinto, Anglo American, Freeport and BHP what they think now!
Dayal Divyanshu
If 2017 is anticipated as recovery of commodity cycle, then its a wrong decision for future of Indonesia. There aren’t many takers in market if this decision is to attract investment now. This might also be a strategy to get an investment commitment now and then change later. The companies will have no way to exit.