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Bill Sullivan: Indonesia government’s move to relax mineral exports surprises many industry players

JAKARTA ( – The Indonesian government’s decision to relax mineral exports have surprised many industry players, in particular smelter developers, according to Bill Sullivan, a mining industry expert at Christian Teo & Partners said.

“Allowing the continuation of exports of metal mineral concentrates and, in particular, copper concentrate was never seriously in doubt. However, many industry participants were, apparently, taken by surprise as a result of the government of Indonesia’s (GOI) decision to also allow the resumption of exports of nickel ore and bauxite ore,” Sullivan said.

He said last week’s changes are to be seen as a tacit recognition by the government that Indonesia’s domestic processing and refining regime has failed to deliver, on a timely basis, anything like the magnitude of benefits that were expected when the regime was first rolled out in 2012.

The fact that the government has decided to allow the resumption of exports of nickel ore and bauxite ore is a clear indication of (i) how serious is the government’s current fiscal position and (ii) the increasingly short term nature of the government’s objectives now that it is half-way through its term in office and the next presidential election must be held in 2019.

“With the tax amnesty failing to deliver as big a windfall gain as the government was hoping for, the government has to find new ways to fund its most important program; namely, infrastructure development. This includes generating more revenue from the mining industry,” he said.

The government has clearly decided that some immediate increase in mining industry revenues, as a result of a relaxation of the export ban, is more important than any potential, much greater, increase in mining industry revenues if and when full domestic processing and refining of metal minerals ever becomes a reality on a large scale, Sullivan said.

The recent political and social unrest in Indonesia may also have contributed to the government’s last minute decision to allow the resumption of exports of substantially unprocessed/unrefined nickel ore and bauxite ore, he added.

Helping small nickel and bauxite producers, generating jobs for unemployed workers and reducing the immediate economic concerns of the majority of the population are now, most probably, a much more immediate and important  government objective than “staying the course” in trying to realize, any time soon, more philosophical and resource nationalist goals such as full domestic processing and refining of metal minerals.

“Although the continuation/resumption of the right to export, less than fully refined metal minerals, is tied to a commitment, by exporting producers, to construct domestic smelters within five years, there can be no certainty that the regime will not be changed, yet again, at the end of five years to further extend the deadline for domestic smelter construction,” he said.

As a consequence, last week’s changes have resulted in “protest” from investors in and financiers of existing smelter facilities in Indonesia who consider that they have been seriously misled by the government which had previously indicated that the export ban would be rigorously enforced in respect of all metal minerals as of 12 January 2017.

He said smelter investors/financiers are obviously concerned that, notwithstanding the restrictions imposed by GoI on the (i) continuation of metal concentrate exports and (ii) resumption of exports of unprocessed nickel and bauxite ore, last week’s changes may be just the beginning of a more wide ranging rethink of the merits or otherwise of continuing to make full domestic processing and refining of metal minerals a “must have now” GoI priority. (*)

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