* Rusal, Norilsk push Jakarta to stick to ore export ban
* Russian giants aided by support for nickel prices
* Ban alarms Japan and China, big buyers of nickel, bauxite
* U.S. firms Newmont and Freeport hurt by new rules
* Russia considers Indonesia smelter, rail investment
By Randy Fabi and Fergus Jensen
JAKARTA, March 24 Russia's two metal giants have
emerged as big winners from Indonesia's new mining law, after
leading a drive to get Jakarta to stick to its controversial
mineral ore export ban in the face of opposition from miners and
In its six-month lobbying campaign last year, United Company
Rusal and Norilsk Nickel delivered a blunt
message to Indonesian officials: We will only invest billions of
dollars in smelters if you ban bauxite and nickel ore exports.
The effort seemed to have paid off, despite a denial by
Indonesia that it was influenced. When the law came into effect
this year, Indonesia enforced a water-tight export ban for only
two major minerals - nickel ore and bauxite.
The halting of $3 billion of annual nickel ore and bauxite
exports has already lifted the price of nickel and helped
support aluminium, boosting the fortunes of Rusal and Norilsk,
the world's top aluminium and nickel producers, respectively.
At the same time, it has strengthened the case for the pair
to invest billions of dollars in Indonesia to build smelters to
replace costly capacity in Russia, a key part of a recovery plan
for struggling Rusal and in line with Indonesia's own aims to
earn more from its minerals resources.
The mineral ore export ban is aimed at forcing miners to
move up the value chain by processing the minerals they dig up.
Rusal CEO Oleg Deripaska traveled repeatedly to Jakarta last
year as signs emerged that the government might water down the
ban under pressure from miners, and concerns over its impact on
Southeast Asia's largest economy.
"They made the export ban policy the main requirement for
them to invest here," Industry Minister Mohamad Hidayat told
Just before the ban took effect on Jan. 12, Indonesia
conceded to pressure from miners and made last-minute changes to
the policy to allow shipments of most metals to go on, but it
did not relax the policy for nickel ore and bauxite.
The supply cuts have already been a game changer for nickel,
with benchmark nickel prices soaring 17 percent to an
11-month high after the ban, while starving global markets of
bauxite that should help curb China's huge aluminium expansion
and support global prices.
This has benefited Rusal and Norilsk, whose shares have
risen more than 11 percent since the ban, though it has been at
the expense of big buyers such as China and Japan. It has also
come at a price for Indonesia which, despite gaining a pledge
for a smelter, has suffered mine closures and layoffs.
"Behind all of this is Rusal," said Tjandra Irawan, director
of Indonesia's Mineral Entrepreneurs Association. "What Rusal
always wanted was a total ban ... only then would they invest."
Indonesia's industry minister denied overseas firms played a
role in how the ban was implemented. Foreign influence on such a
big economic policy is sensitive in Indonesia, particularly with
elections looming in a few months.
Russian firms were, however, involved like no other foreign
companies in pushing their case - repeatedly sending executives
to Jakarta, organising a conference to lobby officials, and
teaming up with influential industry players to push their case.
When asked about its lobbying strategy, Rusal said it was
"closely following the developments" in the months leading up to
the ban because of the uncertainty over how the government would
implement the law. Norilsk declined to comment.
Before the ban, Indonesia was the world's top nickel ore
exporter and the largest bauxite supplier to China, accounting
for around 12 percent of the global market in both cases.
In February, Maxim Sokov, first deputy CEO of En+, the
parent of Rusal, said the ban was helping market prices of
aluminium and nickel turn upwards. Sokov is also a board member
Around the middle of last year, Indonesia began wavering on
the proposal due to fears a complete ore export ban would hurt
the economy and lead to widespread unemployment.
Government officials sought to reassure the mining sector
that the law would be diluted.
This worried Rusal, which has been struggling with weak
aluminium prices and mounting debt and saw the export ban as key
to its turnaround strategy, which included making Indonesia a
regional hub for its alumina production.
"Rusal and Norilsk were the only foreigners that seemed to
be really concerned about how the ban would be implemented,"
said a government official close to the matter, who declined to
be identified because of the sensitivity of the subject.
China and Japan, both big buyers of Indonesian nickel ore,
have been concerned by the ban. Beijing is organising a
delegation of Chinese firms to visit Jakarta to discuss the new
rules, while Japan is considering taking Indonesia to the World
Trade Organisation over the ban.
From June last year, Rusal's CEO went to Indonesia at least
three times in six months to push the government over the issue.
The Russian firms also teamed up with UBS and the
Indonesian Chamber of Commerce and Industry to hold a seminar in
Jakarta in October attended by top government officials.
The firms were especially worried about a proposal from the
mines ministry that could allow exports of unprocessed mineral
ore to continue for companies planning to build smelters.
The ministry dropped the proposal a month later after it was
rejected by parliament, though sought industry input on how to
implement the mining law without damaging the entire sector.
The export ban has also hurt U.S. miners in Indonesia.
Despite being allowed to continue exporting copper,
Freeport-McMoRan Copper and Gold Inc and Newmont Mining
Corp have halted shipments and cut output due to a
dispute over an escalating export tax under the new rules.
While U.S., Japanese, and Chinese firms have long been big
investors in resource-rich Indonesia, Russian firms are now
pledging to significantly lift their investment.
Rusal's Deripaska came with a big Russian business
delegation to Jakarta in February to sign a memorandum of
understanding to build an alumina smelter in West Kalimantan for
an estimated $3 billion. Russian Railways is also planning to
invest $2 billion in a line to East Kalimantan coal rail line.
(Additional reporting by Yayat Supriatna and Wilda Asmarini in
Jakarta, and Polina Devitt in Moscow; Editing by Ed Davies)