UPDATE 3-Indonesia court upholds challenge to raw mineral export ban

Mon Nov 5, 2012 7:42am EST

By Yayat Supriatna and Fergus Jensen

JAKARTA Nov 5 (Reuters) - Indonesia's supreme court has upheld a challenge to a government ban on the export of unprocessed minerals, a decision that could pave the way for a resumption of exports by junior miners who have been hit hard by the restriction imposed in May.

The verdict effectively annulled parts of new mining regulations introduced on May 6, said the Indonesian Nickel Association (ANI) and the Chamber of Commerce and Industry (Kadin), which showed Reuters a copy of the ruling on Monday.

Trade Minister Gita Wirjawan said he was looking into the issue, a comment echoed by Susyanto, head of the legal bureau at the Ministry of Energy and Minerals.

"We will seek information on the Supreme Court verdict as quickly as possible. After that the government will study the decision and take steps," Susyanto told Reuters. There was no immediate comment from the court on a decision the government may appeal.

The ruling is likely to prompt further uncertainty in a $93 billion sector reeling from a series of regulatory changes this year, although it is unclear whether it will lead to an immediate increase in exports.

Analysts said it represents a setback for the government of President Susilo Bambang Yudhoyono, which instituted the rules to increase revenue, conserve resources for domestic needs and boost the downstream mining sector.

Mining constitutes 12 percent of GDP of Indonesia, which is already the largest economy in Southeast Asia and seeks to become a global top 10 economy by 2025.

Indonesia is the world's largest exporter of refined tin and nickel ore and a significant exporter of iron ore and bauxite. The rules do not apply to big players such as Freeport McMoRan Copper & Gold and Newmont Mining Corp, which, along with coal, are not covered by this part of the regulations.

MORE UNCERTAINTY

The rules aimed to push miners into processing raw ores domestically to export higher-value finished metals, but mining executives said they hurt the sector at a time when commodity prices and investment faced pressure due to a global slowdown.

ANI and the Association of Indonesian City and Regional governments (Apkasi) brought the case in which they asked the government to drop four chapters of the regulations.

"The supreme court agreed with some parts of our case and has ordered the central government to drop four chapters of the regulation, including chapter 21 on the mineral export ban," ANI chairman Shelby Ihsan Saleh said.

Shelby told Reuters he was referring to Energy and Mineral Resources Ministry Regulation no. 7 on mineral processing.

The supreme court verdict was published on Sept. 12, an ANI official said.

One of the four chapters to be removed banned miners from exporting raw minerals. This was revised with a clause that allowed ore exports if miners complied with rules on downstream processing, duties and adhered to good mining practices.

"With the supreme court decision all the chapters (of the ban) have to be dropped as soon as possible and mineral exports will be regulated by the Trade Ministry," Natsir Mansyur, a senior official at the chamber of commerce, told Reuters.

"The Energy and Mineral Resource ministry has no right any more to regulate exports, including determining the mineral export quota," Mansyur added.

"MAJOR EMBARRASSMENT"

The regulations sent exports of nickel and other minerals soaring ahead of the ban and then plummeting when it was implemented.

In one example, Indonesia's total iron ore exports climbed 24 percent to 1,912,220 tonnes in April, and then dropped 80 percent to 371,468 tonnes in May.

It hit exporters who operate with government-issued mining permits hard, especially small scale producers in areas such as the island of Sulawesi.

The case is linked to a separate Constitutional Court challenge to regional autonomy over mining, and any government decision on the matter would have to wait until this was resolved, Susyanto said.

"What is being challenged at the Constitutional Court is a law. That has a higher legal standing," he said.

Kadin, which has been tasked by the government to assist miners in adapting to its rules, said it was asking the Trade Ministry for help drafting new mineral export rules.

"This is certainly a major embarrassment for the government which has actually seen a lot of interest in the establishment of processing plants in the country as a result of the threat to stop exports," said Keith Loveard, head of risk analysis at Jakarta-based Concord Consulting.

"The government is now going to have to persuade investors to go ahead with plans for processing plants even though the threat of an export ban has been removed," he said.

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