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Indonesia Implements Raw Mineral Export Restriction

Indonesia’s Government Regulation No. 1 of 2014 (“GR 1/2014”) and Minister of Energy and Mineral Resources Regulation No. 1 of 2014  (“ESDM 1/2014”), enacted on 11 January 2014, implement the ban on raw mineral exports legislated under Law No. 4 of 2009 on Mineral and Coal Mining (“Mining Law”). The two regulations are currently in force. However, the restriction is not in full effect as ESDM exempts 5 minerals from a higher standard of refinement for a period of three years, on the condition that the exporter owns sufficient reserves for eventual smelting and has a credible plan to construct a smelter or jointly process the ores.

 
How Does the Restriction Work?

The original mandate under the Mining Law is for all miners to domestically process raw ores so as to add value to them and meet domestic demand. Notwithstanding this mandate, the brunt of these two regulations focuses on banning raw mineral export – it does not penalize a miners’ failure to process domestically insofar as no export takes place. Indeed, mining license holders may sell unrefined ores domestically. Such domestic sales are completely exempt from the obligation to refine. This position is consistent with ESDM’s policy of channelling unprocessed ores towards domestic market or not exporting them at all. 

At a practical level, Ministry of Trade officials at the port of departure will require ESDM export approval, known as an ESDM Recommendation, before allowing export (see below for details on obtaining the recommendation). ESDM will only issue that recommendation if it is satisfied that the minerals are sufficiently processed or purified.

 

What Raw Minerals Fall Under the Export Restriction?

Practically, all of the raw mineral ores. The regulation specifies the processing/purification standards for 11 metals, 8 non-metal minerals and 19 stones. As a caveat, Article 10 of ESDM 1/2014 places a blanket export restriction on all minerals, listed or not. All those minerals that are currently not listed may not be exported until such time as ESDM has issued a purification standard and the mineral has been purified to that standard.

The regulation also requires refinement of purification and processing by-products, including muds, cathodes and anodes.

 
Is This List Final?

No. Article 10 of ESDM 1/2014 stipulates that all mineral commodities that are not currently listed in this regulation may only be exported once they have been purified to the standards set out by ESDM.

Articles 3(2) and 3(3) of ESDM 1/2014 merely set out guidelines on how the regulator will further define processing and purification standards. However, this list is by no means definitive. Rather, it should be taken as a rough forecast on the standards of mineral purification for minerals that are not currently listed.

These imply that ESDM will issue further regulations, or revisions, on the purification standards at a later date. Until such standards are legislated and the miners meet these standards, the minerals may not be exported. As such, one should treat ESDM 1/2014 as the first of many purification standards to come.

Finally, past experience with ESDM indicates that it has consistently altered the purification standards.

 

What Does ESDM Mean with Processing and Purification?

ESDM sets out two refinement categories: processed and purified. Processing means refining the ores into concentrates for metals and cutting the stones and non-metal minerals into finer pieces. Purification is further refining the concentrate into solid metal, which only applies to metal ores. The purity standards are set out in the appendix of ESDM 1/2014.

 

Why Does That Distinction Matter?

ESDM allows export of non-metal minerals and stones on the condition they are processed. They need not be purified (see Art. 11 ESDM 1/2014).

ESDM 1/2014 also provides for a 3-year grace period during which 5 of the 11 metals only need to be processed but not purified for export, on the condition the exporter is recommended by the ESDM. 

The 6 metals that must be purified to the standards set out in the appendix are nickel, bauxite, tin, gold, silver and chromium.

The 5 metals that only need processing during the 3-year grace period are copper, manganese, lead zinc and iron. However, export of these minerals in their processed but not purified forms are conditional upon obtaining recommendation from the ESDM  (see below).

 
Is the Export Restriction Absolute?

With respect to non-metal minerals and stones, yes. They must be processed (that is parsed and separated into finer segments) and this is an absolute precondition for export.

With respect to metal ores, ESDM requires six minerals in the list to be purified (mostly up to 99%). These minerals are nickel, bauxite, tin, gold and silver and chromium. For the remaining five, copper, manganese, lead zinc and iron, there is a 3-year grace period during which these metals may be exported in their processed (concentrate) forms.

Export of metal concentrates is however conditional. Article 12(8) in conjunction with Article12(6) of ESDM 1/2014 permits the export of the concentrates of the five ores listed above on the ground the exporter is recommended by the Director General of Coal and Minerals (DGCM). To obtain this recommendation, an exporter must have sufficient reserves for refining and demonstrate a credible commitment to building a smelter.

This grace period, however, will only apply for the first three years, after which the exporter may only export purified minerals (see Article 12(5) of ESDM 1/2014).

 

ESDM Statements and Remaining Uncertainty

Separately, at the time of issuance of GR 1/2014 and ESDM 1/2014, the ESDM Minister, Jero Wacik, issued a press statement stating that 66 mining companies are exempt from the raw ore export restriction. 

Whether this exemption is based on ESDM 1/2014 or a past regulation is unclear, although the timing indicates that these are the companies that have been recommended by ESDM, as described above.

One possible basis is that ESDM previously issued a set of regulations allowing miners with credible plans to construct a smelter to continue export. However, the Supreme Court had revoked the parent regulation upon which these exceptions were granted. Equally, ESDM 1/2014 makes refinement an absolute precondition to export. It also revokes and nullifies ESDM 07/2012 and its amendments.

Another possible theory is that the 66 companies do not export or do not export as their main product the six metals listed in Article 12(4). In a last minute change, the ESDM and the President’s Office lowered the refinement standard for copper, manganese, lead zinc and iron ore from “purification” to “processing”, thus sparing these 66 companies the full blow of the requirement.

One final theory is that these companies are already purifying their ores or are building or have built a smelter, thus complying with Articles 12(5), 12(6) and 12(8) ESDM 1/2014. With respect to purification standards, ESDM applies the same standard it specified under Regulation 7/2012.

The list of the 66 companies has not yet been published, and neither have been the criteria for inclusion on the list. We will issue an update once such information becomes available.

The Indonesian Association of Mineral Entrepreneurs (APEMINDO) has stated that is plans to launch challenges to the regulations implementing the raw mineral export ban at both the Supreme Court and the Constitutional Court.

 
How Can I Export?

As discussed above, an exporter needs to obtain a recommendation from the ESDM/DGCM.  To obtain a recommendation an exporter needs to show both sufficient reserves and credible plans to build or cooperate with others in constructing a purification facility (smelter). In summary, the options are:

 

[Last update: 2014-01-21 11:31:53]

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