Indonesia's Mining Muddle

Supreme Court ruling sticks a mysterious thumb in the government's eye

The voice on the other end of the line belonged to a senior Indonesian mining executive and he was laughing. “Well you know, anything can happen,” was his conclusion when asked about the Supreme Court ruling that leaked out this week, apparently slapping down the government’s ban on the export of unprocessed minerals.

“Our lawyers say it is too early to do anything,” he added, since the full official ruling has not been released and may not be for months.

Like most things having to do with mineral resources extraction in Indonesia, the court decision was confusing. It appears to be a major slap in the face of the government, which recently instituted a 20 percent tax on unprocessed exports of 65 minerals ahead of a total ban in 2014.

The ban is part of the government’s drive to build a “value added” mining industry in which onshore smelting and processing of most minerals would leave more of the wealth generated by mining in local hands and would give the country greater control over its own resources.

But with commodity prices being squeezed, the industry has howled over the ban. Mining types complain that the list itself is inconsistent, the cost of building large-scale smelters is prohibitive, current electrical supplies are inadequate and technology and financing for smelting are unavailable locally.

Small-scale miners say that export restrictions make it impossible for them to generate the capital required to put up processing plants. Foreign companies are worried about the regulatory uncertainty in the industry here. Some big mining companies have written off the Indonesian mining sector for future investment as being too risky.

At a recent seminar I attended, a number of ministries — mining, trade, industry — were on hand to explain the export regulations to foreign and local businesspeople. Unfortunately, the road map toward getting permits certified, licenses issued and exports underway was unfathomable. “Is there a critical path diagram of how to get this done?” I asked one of the experts observing the proceedings. The man just shook his head.

At issue in the court case is a challenge from the Indonesian Nickel Association (ANI) to the export ban and other implementing regulations that have grown out of the 2009 mining law. They argue that the ban — and indeed the central government’s current drive to get control over the mining industry — violates the 2004 Regional Autonomy Law that handed control of the mining sector to local districts.

I can see the government’s point in trying to insert some control over the districts, where too much money has met too little local government expertise in mining, with the result that thousands of permits have been handed out with overlapping claims, environmental problems and a host of other foul-ups. Unfortunately, the government has appeared to be lurching from one policy to another with little coordination with the industry, the districts and others involved. Mining investors say that exploration has virtually stopped and prospects for the future are dismal.

The case raises at least one question: was anyone aware that this Supreme Court case could end up derailing the government’s policy? In light of the challenge, did the ministries involved think to evaluate their chances of losing before implementing the export restrictions before the court ruled?

One aspect of the ruling, according to the Indonesian Chamber of Commerce and Industry (Kadin), is that future mining exports are to be supervised by the Trade Ministry instead of the Energy and Mineral Resources Ministry. This is probably a good thing, but why wasn’t trade already handling export policy, or was it? Officials at the explanatory seminar I sat in on gave conflicting answers. You can hardly blame investors for being confused.

Mining is complicated and emotional, but it has been lucrative for Indonesia and now might be a good time, to take a step back and get everybody around a table for a good heart to heart about all this. Maybe the court has given the government a chance for a reboot.

(A. Lin Neumann is one of the founders of the Asia Sentinel. A version of appeared in the Jakarta Globe.)