Indonesia re-examines mineral processing requirements

Reuters

By Fergus Jensen

JAKARTA, Dec 19 (Reuters) - Indonesia's government is re-examining provisions in a mining law that would ban exports of unprocessed metal ores from next year, chief economic minister Hatta Rajasa said on Thursday, asserting that the law must not be breached.

A furious debate has erupted over the scheduled export ban, an issue that pits nationalist-minded lawmakers against officials and companies desperate not to lose revenue.

From January 12, mining companies must process their ore before shipping it overseas, a measure that aims to boost the value of exports from Indonesia, the world's top exporter of nickel ore, thermal coal and refined tin.

But uncertainty over details on the processing requirements set out in the law has drawn protests from small mining companies as well as major players, including U.S. giants Freeport McMoRan Copper & Gold and Newmont Mining Corp. which now turn only about a third of their production into refined copper domestically in Indonesia.

"I want to ask our legal team, of course this would mean the Attorney General's Office and legal experts - what is their understanding of the law on coal and minerals?," Rajasa told reporters after a government cabinet meeting in Jakarta.

He was referring specifically to a section in the law on processing requirements for contract holders such as Freeport and Newmont, which have both argued they should be exempt from the ban because they refine refine ore domestically and export copper concentrate.

"There are requests for companies that already have smelters in Indonesia - but these are not 100 percent regulated in the law. So these need to be regulated," he added.

Lawmakers earlier this month told the government they would not dilute the law, adopted five years ago, and it must go ahead as scheduled. Officials have been pressing for a reprieve, at least for miners that can show they have been trying to meet demands to process their ore before it is loaded for export.

A tumbling currency, a precarious trade deficit and protests from industry have made the Southeast Asian nation reconsider the step.

Rajasa also denied that the president would be the one to make a final decision on the ban. "It's not up to the president," he said. "It's the law."

Indonesian President Susilo Bambang Yudhoyono was expected to make a final decision soon on the ban, the country's trade minister said last week.

Freeport's Indonesian unit, which runs the world's fifth-biggest copper mine in the world, has warned that the planned export ban would cut the firm's revenues in the country by 65 percent, costing Southeast Asia's biggest economy $1.6 billion in lost revenue next year.

A recent World Bank report suggests that an optimistic view of the export ban would result in "a significant, negative shock to Indonesia's trade balance of around $6 billion in 2014. Such a shock would add around 0.6 percentage points of GDP to Indonesia's current account deficit in 2014 moving the projected current account deficit from 2.6 percent to 3.2 percent of GDP."

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