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Indonesia climbing up mining value chain

Published Mon, Jan 20, 2014 · 10:00 PM
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WHILE few will fault Indonesia's attempt to get its mining industry to add value to its exports by processing the minerals within the country, the way the new policy has been implemented is causing consternation among its miners. Mining contributes no less than 12 per cent to its GDP. Indonesia is the world's top exporter of nickel ore, tin and coal. The country also produces substantial amounts of copper, iron ore and bauxite.

An ore export ban had been in the works since a mining law was passed in 2009. Subsidiary rules on unprocessed mineral ore exports were set out in July 2012, which included a new 20 per cent export tax on raw minerals. Foreign-owned miners are resisting the ore processing rule because, it is being claimed, the impetus for this policy are the legislative and presidential elections later this year. Politically motivated or not, Indonesia is not exceptional in pursuing such a policy: almost every primary producing country wants to move up the value chain. Thus, Jakarta's action should be seen against the backdrop of other initiatives aimed at extracting more value from its rich stores of natural resources as well as its forest and plantation output.

Nevertheless, international mining companies have stood by the letter of their original agreements and have threatened to go in for international arbitration if their operations are affected. Last week, Jakarta was forced to water down the export ban, hours before the law took effect, to allow them to continue ore exports until at least 2017. These companies are obligated to build smelters by then. Some midsized miners that have had difficulties complying with the rule because third party smelting works are yet to be completed were also given more time. To ensure compliance, a progressive tax, starting at 25 per cent, is being imposed. Foreign miners seem determined to hold out.

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