Indonesia softening mining policy after industry backlash

JAKARTA, April 17 Wed Apr 17, 2013 6:37am EDT

JAKARTA, April 17 (Reuters) - Indonesia appears to be softening a controversial mining policy amid industry criticism and legal challenges to rules whose implementation could cost Southeast Asia's largest economy up to $10 billion a year in lost exports.

The world's top exporter of thermal coal, refined tin and nickel ore has pushed to boost exports of finished products and maximize benefits from a sector home to giants such as Freeport McMoRan Copper and Gold and Newmont Mining.

Last year Indonesia asked all miners to submit plans to build refineries or smelters ahead of a January 2014 ban on raw mineral exports. Until then a 20 percent tax on ore exports has been levied.

Deputy Energy and Mineral Resources Minister Susilo Siswo Utomo said the focus is to add value to exports, and for that smelters need not necessarily be built.

"The word process does not mean you have to build a smelter. Sometimes you need to wash, to separate the soil and mud. This is also processing," Utomo told an Australian mining conference in Jakarta on Tuesday.

"We also realise that not all minerals can be processed," Utomo said.

The government hopes construction will have started on at least 10 smelters by the end of the year when a more concrete processing policy will be in place, he added.

Utomo's comments come after Energy and Mineral Resources Minister Jero Wacik was quoted in local media as saying the rules were "impossible."

"We will see what form it will take, so that the law can be carried out, but we are not blocking ourselves," Wacik told reporters last week.

The rules led to layoffs and forced multiple smaller mines to close as ore shipments came to a standstill, costing the industry $164 million a month in lost sales of nickel and bauxite alone.

LOST EXPORTS

Up to $10 billion could be lost annually in exports if the smelter requirement and the export ban remain in place, said a senior Jakarta-based analyst with a U.S. mining company, who did not want to be identified due to the sensitivity of the matter. Mining exports from Indonesia last year totaled $31.3 billion.

In a joint meeting in Jakarta on Monday, the country's top mining associations criticized the processing rules. For lead, zinc and copper, building smelters is not economically viable because of the size of Indonesia's reserves and the slim refining margins, the Indonesian Mining Association said.

The policy shift would be good news for companies such as Freeport and Newmont, which process ore in the form of concentrate already, but do not smelt all of it locally. Freeport said last month it remained reluctant to build smelting operations in Indonesia..

The smelting requirement has also been a sticking point in their contract renegotiations with the Indonesian government.

"These are interesting and significant developments," Australian senior trade commissioner Kym Hewett told Reuters on the sidelines of the mining conference, referring to the ministers' comments.

"Value-adding and processing of minerals mean a lot of different things. It's not just all smelting and refineries," Hewett added.

"It remains to be seen where it goes."