UPDATE 1-Indonesia trying to skirt its own ban on mineral exports

Mon Dec 9, 2013 8:17am EST

* Govt to continue talks with parliament

* Freeport, Newmont warn ban could stop operations

* Govt has power to create loophole, says mining assoc

JAKARTA, Dec 9 (Reuters) - Indonesia's government is still seeking a way around a mineral ore export ban that the country's parliament insists remains in place, chief economic minister Hatta Rajasa said on Monday, as mining investors held out for a breakthrough.

The ban, which comes into effect next month, is designed to increase the value of the country's mineral exports. Indonesia, the world's top exporter of nickel ore, thermal coal and refined tin, has for decades and with limited success tried to create more value from its vast array of natural resources and hopes to develop processing industries to support its growing economy.

But a shortage of smelters in place threatens to cut output from mining companies in Indonesia such as Freeport-McMoRan Copper & Gold Inc. and Newmont Mining Corp unless they find a way to meet or adjust the minimum processing requirements.

"We are trying to find a way, to find a solution. But that doesn't mean we are going to break the law ... We are going to talk again to parliament," Rajasa told reporters.

Freeport, the country's top exporter of copper and a major source of export revenue, is also seeking a way around the ban that could see its production cut by 60 percent or force it to stop operations completely.

Newmont, which currently smelts less than a quarter of its ore domestically, has also warned it may have to halt operations at its Batu Hijau mine, which it operates in partnership with Japan's Sumitomo Corp.

The ore export ban has come at an unwelcome time for the government, as Indonesia scrambles to cut a large current account deficit that has been undermining confidence in its currency, Asia's weakest this year after falling around 20 percent to the dollar.

Any cut in exports will only mean a bigger deficit. The authorities have been deliberately slowing growth in an attempt to cut imports and the current account deficit.

Late last week, lawmakers rejected a government bid to water down the ban by allowing mining companies to export unprocessed ore if they were able to show they were building smelters or were prepared to pay higher export taxes.

A complete ban would cost Indonesia billions in lost revenue from the mining sector, according to the Indonesian Mining Association (IMA).

"Thousands of workers will be left unemployed ... I think the only ones who will survive will be Vale Indonesia and partly Antam," said IMA vice chairman Tony Wenas, referring to two companies that posses smelting facilities.

THRESHOLD

However, there is still room for the government to manoeuvre around parliament and the export ban, Wenas said, by adjusting its regulation that determines minimum purity thresholds for processing.

"The law only states that companies must process and refine their products domestically," Wenas told Reuters, pointing to a discrepancy between the minimum processing threshold for copper (99.9 percent) and nickel pig iron (6 percent) set out in a government regulation.

"To change the law, of course it's up to the parliament, but to change a regulation or a ministerial decree is the authority of the government," Wenas said.

Earlier, the Indonesian Mineral Entrepreneurs Association said it was also against the ban, which it said would destroy the domestic mining industry by cutting into profit margins.

The association said the law favours big international mining firms like Freeport-McMoran Copper & Gold Inc and Newmont Mining Corp that could afford to build smelters.

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