Indonesia's export ban bullet to miss foreign miners as local players hit

Fri Jan 10, 2014 4:36am EST

* Freeport, Newmont may emerge unscathed from Jan. 12 export ban

* Worsening economic climate forces government's hand

* Policymakers wary of job losses, civil unrest ahead of elections

By Michael Taylor and Kanupriya Kapoor

JAKARTA, Jan 10 (Reuters) - Indonesia's mineral ore export ban, an ambitious policy aimed at getting more money for its resources, will hit domestic miners who have already begun shedding jobs and leave foreign firms unscathed.

The mineral ban is an attempt to transform Southeast Asia's biggest economy from being simply a supplier of raw materials into a producer of finished goods, boosting government coffers.

The new rules, one of the biggest policy moves by Indonesian President Susilo Bambang Yudhoyono in nearly a decade in office, force firms to commit to invest millions on processing minerals if they want to ship their goods out.

"The problem with this policy is that the smaller miners have no capacity or money to invest in smelters," said Sofjan Wanandi, head of the Indonesian Employers Association (APINDO).

"We gave input to the government that those that haven't been able to give that (smelter) guarantee will have a hard time if there is a total ban but ... we can't protect the small miners for too long."

The damage is already being felt. Almost 30,000 mine workers have been laid off as more than 100 junior miners halt operations, according to the Indonesian Mineral Entrepreneurs Association.

The government has been scrambling in recent months to water down the law, initially introduced in 2009, on fears it will widen a large current account deficit and add to the falling rupiah's woes. Some miners, betting on a backdown on the policy, have done little to boost their infrastructure ahead of the ban, raising the spectre of a big decline in export revenues.

Indonesia is the world's top exporter of nickel ore, refined tin and thermal coal, and a major producer of copper, iron ore and bauxite. Its mineral wealth accounts for about 5 percent of total exports. Mining contributes around 12 percent to its GDP.

Yudhoyono's administration has backed several policies aimed at generating greater profits and creating more jobs from natural resources with some success in tin, cocoa and palm oil.

After weeks of wrangling between officials, legislators and mining companies, last-minute government proposals will allow U.S. giants Freeport-McMoRan Copper & Gold and Newmont Mining Corp to continue shipping copper concentrate.

Nickel ore and bauxite remain banned, hurting shipments from smaller miners like state-owned PT Aneka Tambang, unlisted PT Harita Prima Abadi Mineral and Singapore's Ibris Nickel Pte Ltd.

The government argues that copper undergoes at least some processing into copper concentrate before it is exported, while nickel and bauxite ores are completely unprocessed, shipped out as earth dug up and dumped into barges.

But it is these smaller, low-cost operations that are locally run and employ thousands of workers.

The planned revised ban will cut government revenue by as much as $820 million this year, the finance minister said on Friday.

Mining industry figures in Indonesia have long criticised the time given to develop downstream industries and build smelters, citing the lack of power and infrastructure in remote areas where mines are often located.

Ample global smelting capacity, coupled with weak metal prices, have also been given as reasons why new smelters would not be economically viable.

"NATIONALIST FERVOUR"

For the government to force miners to stop work would also result in large job losses - both at mines and their supporting industries - stoking political and civil tensions in some of the more volatile provinces.

"This policy will result in mass layoffs for workers in the mining sector," said Subiyanto, general secretary for All-Indonesia Workers Union, speaking at a 1,000-strong protest outside the mines ministry on Thursday. "We asked that it be revised.

"We agree in principle but ... the government has done nothing to prepare the infrastructure (for smelters) since the law was proposed."

Seen as an example of a creeping resource nationalism in Indonesia, the government's last-minute scrambling highlights a perceived dithering by Yudhoyono, who will step down after elections later this year.

Parliamentarians blocked an attempt by the government in December to amend the law, prompting the president to pursue the last-minute regulation. Lawmakers argued that, in the long run, the completion of new smelter projects would create jobs.

"Everybody is expecting that nationalistic fervour will reach a fever pitch with the elections so nobody will pull back on this until the elections are over - if ever," said Hans Lukiman, a commissioner at privately-held Indonesian nickel, iron ore and coal miner Ascend.