Indonesia Supreme Court Upholds Nickel Miners' Challenge On Raw Mineral Export Ban

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Researched by Industrial Info Resources (Sugar Land, Texas)--The Supreme Court of Indonesia has granted the challenge brought before it by the Association of Nickel Miners (ANI) against the government's ban on the export of raw metal ore by 2014 and the corresponding 20% export tax announced in May.

The nickel mining companies have lost approximately $625 million to $730 million in the past five months after the export tax was implemented, according to the Indonesian Chamber of Commerce and Industry, and decided to challenge it, in part, through ANI.

Speaking on the law, ANI chairman Shelby Ihsan Saleh said the association filed the complaint to the Supreme Court, as most mining companies under ANI's umbrella had been forced to reduce their production, while some shut down operations following the export tax. He explained further that the move wasn't intended to challenge the government's plans to encourage domestic ore processing, but to grant stakeholders ample time to adjust to such crucial changes.

"We are not saying that we reject the government's plan to encourage a local smelting process, we just want more time to prepare ourselves before 2014, in which the government expects us to not export unprocessed minerals anymore," Saleh said.

Saleh is also of the opinion that mining companies were not yet ready to construct the much-needed smelters, saying it would take a long time to acquire such assets, which involves infrastructure, land acquisitions and enormous investment.

Earlier in May, the government of Indonesia published its Energy and Mineral Resources Ministry Regulation No. 7 on mineral processing. One of the four chapters that ANI challenged seeks to ban miners from exporting raw minerals; a revised provision allows ore exports, provided miners comply with rules on downstream processing, duties and adhere to good mining practices. The rules aimed to push miners into processing raw ores domestically to export higher-value finished metals, but mining executives said it is unfair to the sector at a time when commodity prices and investment face pressure due to a global slowdown.

Among other requests, ANI asked the Supreme Court to force the government to drop four chapters of the regulations. "The Supreme Court agreed with some parts of our case and has ordered the central government to drop four chapters of the regulation, including chapter 21 on the mineral export ban," Saleh said.

"With the Supreme Court decision, all the chapters (of the ban) have to be dropped as soon as possible, and mineral exports will be regulated by the Trade Ministry," Natsir Mansyur, a senior official at the chamber of commerce, told a reporter.

However, Trade Minister Gita Wirjawan and Susyanto, the head of the legal bureau at the Ministry of Energy and Minerals, said they were currently looking into the issue.

"We will seek information on the Supreme Court verdict as quickly as possible. After that, the government will study the decision and take steps," Susyanto told reporters. And there was no immediate comment from the court on a decision the government may appeal.

Industrial Info gathered that the ruling would likely prompt further uncertainty in the $93 billion metals and mineral sector of Indonesia, even as analysts view it as a setback for the government of President Susilo Bambang Yudhoyono, which instituted the rules to increase revenue, conserve resources for domestic needs, and boost the downstream mining sector.

Indonesia is the world's largest exporter of refined tin and nickel ore, and a significant exporter of iron ore and bauxite. Mining constitutes 12% of its gross domestic product (GDP), making Indonesia the largest economy in Southeast Asia. The country seeks to become a global top 10 economy by 2025.

Following the export ban, regulation and extra tax imposition, many foreign investment proposals from companies in China (Aluminum Corporation of China Limited), Singapore (Ibris Nickel Group) and Australia were releases, all trying to meet the 2014 dateline for the filling investment application. Industrial Info has tracked more than 185 proposals from such companies applying to build smelters, among which are the few believed to be moved by the need to also secure export permits.

If the trend continues, Indonesia would become a destination for metal ore refining by 2015, but it is not clear what would move investors to proceed with their investment plans without the regulations in place. Perhaps we would likely see government persuading investors with a lesser weapon in order to achieve target.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.