By Clyde Russell
LAUNCESTON, Australia Jan 9 The key point with
any laws or regulations is not that they are on the statute
book, it's whether they are applied and enforced, and this will
be the case with Indonesia's ban on metal ore exports.
As is often the case with Indonesia and government policy,
the only certainty is uncertainty and whether the prohibition on
exporting unrefined ores goes ahead, and in what form, is far
In the case that the ban goes ahead as planned from Jan. 12,
it seems likely that nickel ore and bauxite, with a value of up
to an annual $2 billion will be the hardest hit.
Indonesia is the world's biggest exporter of nickel ore and
supplies about two-thirds of top buyer China's imported bauxite.
But Indonesia's mining ministry is seeking to pass
regulations to ease the ban and phase in the requirements for
domestic processing over a longer period of time.
The proposal recommends that raw mineral ores can be
exported until 2017, after which all would have to undergo
It must be pointed out that this proposal still needs the
approval of President Susilo Bambang Yudhoyono, who is believed
to be supportive of the changes.
But it also may fall foul of Indonesia's parliament, which
has taken a fairly hardline stance that miners must beneficiate
locally in order to meet a policy goal of keeping more of the
Southeast Asian nation's mineral wealth within its borders.
What is happening currently is that all sides in the debate
are lobbying as hard as they can, often with the effect that a
muddied picture is presented.
Take the warning that as many as 200,000 bauxite miners will
lose their jobs, issued on Jan. 8 by the Indonesian Chamber of
Commerce and Industry.
This is most likely a worst-case scenario, which is unlikely
to occur, but does make for headlines and puts pressure on the
government to ensure that bauxite, which is used to make alumina
and then aluminium, can continue to be shipped overseas.
If 200,000 bauxite miners were thrown out of work, the
political ramifications would be profound, so the end result is
that at some point a compromise will be reached.
That is what the mining ministry's proposal seems to do, by
lowering the required percentage of ore that must be processed
For copper, this would drop to 15 percent from 98 percent,
thus ensuring the major producers will be able to continue
normal operations until 2017.
BIG PLAYERS LARGELY UNSCATHED
U.S. giants Freeport-McMoRan Copper & Gold and
Newmont Mining Corp dominate Indonesia's copper output,
producing about 97 percent, but only refining about a third of
While the big corporations are being given time to invest in
domestic refining capacity, it's by no means clear that they
want to, given the high cost of building new facilities and the
view that existing and under-construction global refining
capacity is sufficient.
The real losers from any ban on exporting raw metal ores are
likely to be smaller-scale miners, who lack the ability to
process ores by themselves.
They are reliant on the plans of bigger companies to set up
refineries, and they will likely be last in the queue to get
their output processed, even if the capacity is available.
Smaller operations are also more likely to be geographically
disadvantaged as their mines may be located far from existing or
planned processing capacity.
The irony is that the whole beneficiation push is aimed at
generating more wealth domestically, but in reality it may hit
the locally owned smaller miners hardest.
If this does become the case and Indonesian companies,
investors and workers actually start to lose money and jobs,
then the changes to the export ban will be rapid.
All this uncertainty damages Indonesia's image as a place to
do business, but whether this will actually deter any new
investments is doubtful since the country's poor reputation on
policy stability is well-known and long-established.
While the final design of the ban on exporting unprocessed
ores is still uncertain, the trend is clear: At some point
miners operating in Indonesia will either have to invest in
processing domestically or get out.