The Indonesian Nickel ban

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The Jokowi government’s policy shift contributes to pervasive regulatory ambiguity in Indonesia’s mining sector
 
http://www.insideindonesia.org/the-life-and-death-of-indonesia-s-mineral-export-ban

The global mining boom, occurring roughly between 2003 and 2013, caused a frenzy of mineral extraction across Indonesia’s resource-rich regions including Kalimantan, Sulawesi, and Sumatra. During the boom years, Indonesia’s central and regional governments enjoyed a huge boost in revenues as demand from China sent commodity prices soaring. But many policy makers, activists and intellectuals were concerned that Indonesia’s finite resources were being shipped overseas too quickly and too cheaply, and that not enough Indonesians were feeling the economic benefits of the minerals boom.

In response, the government of Susilo Bambang Yudhoyono, or SBY, introduced a new mining law in 2009 which outlined a future ban on the export of raw mineral ores. The government’s goal was to kick-start a minerals processing industry by forcing companies to smelt their ores domestically. Indonesia could then move away from extracting and exporting cheap raw ore and, instead, produce and export higher value mineral products. This ban came into effect in January 2014.

The policy was primarily justified in nationalist terms. SBY and his cabinet described the ban as a way of achieving ‘economic sovereignty’. If Indonesia failed to invest now in a program for industrial upgrading, the government maintained, it would remain ‘a nation of slaves’. Without policies like the export ban, so the argument went, Indonesia would just continue selling cheap commodities to rich industrialised nations without ever moving up the global value chain.

After taking office in late 2014, Joko Widodo, or Jokowi, expressed strong support for the ban. Indeed, the broader agenda of downstream industrialisation aligned with the new president’s nationalist economic sensibilities. But then, in January 2017, Jokowi changed his mind. His government reversed the ban, jeopardising three years of downstream investment and development. This article briefly maps the life and death of Indonesia’s mineral export ban. It explains how the ban came about, the results it achieved and why it was revoked. It also offers some reflections on what the ban reveals about the nature of resource nationalism in Indonesia. I emphasise Jokowi’s particularly statist brand of economic nationalism in comparison to his predecessor, and highlight the intractable regulatory ambiguity that has come to characterise the governance of Indonesia’s resource sectors.

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From: http://www.insideindonesia.org/the-life-and-death-of-indonesia-s-mineral-export-ban

The life of the ban

The 2009 Mining Law laid the legal foundation for the 2014 export ban. Articles 102 and 103 of the law mandate that companies must add value to mineral ores prior to export. Article 170 stipulated that companies with contracts of work or mining licenses had five years from the law’s enactment in which to prepare processing facilities. After the January 2014 deadline, the government would ban raw mineral exports, and only minerals at specified purity levels would be allowed to leave Indonesian shores.

By 2014, however, the global minerals boom was over. Indonesia’s economy was slowing, and the current account deficit was at its worst since 1986. In the years following the law’s enactment both foreign and domestic companies failed to invest in mineral smelters, not believing the government would introduce a hard ban and sacrifice lucrative export revenues. This meant that by 2014 Indonesia still had virtually no refining capacity for key minerals like nickel, bauxite or copper. Most industry stakeholders assumed the government would re-think the intervention and retreat from the nationalist position.

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The death of the ban

So why did Jokowi reverse the ban in 2017? A new regulation introduced in January allows exports to resume under certain conditions. When the new president took office the boom was over and Jokowi was tasked with managing a growing trade deficit. Yet he and his cabinet initially came out in strong support of the export ban. And, given that investment was beginning to produce results, the consensus among industry analysts and government officials was that Jokowi would stick to the plan for downstream industrialisation. One explanation paints the relaxation as the government’s response to financial pressures because opening the door to exports would help ease the budget deficit even if the contribution would be relatively small overall.

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Indonesia’s ore export ban a hard blow to China Nickel Resources

http://blogs.platts.com/2015/09/03/indonesia-ore-export-ban-china-nickel-resources/

China Nickel Resources, listed on the Hong Kong Stock Exchange, had to admit publicly how badly it is suffering from  the Indonesian government’s sudden ban on all ore exports, including iron and nickel ore.

The ban, started in January 2014, forced China Nickel Resources to halt operations at almost all of its core businesses, including a special and stainless steel and nickel-chromium alloy plant in central China’s Henan province, as well as its nickel smelter in east China’s Jiangsu province.

The root cause for all these suspensions in its Chinese operations, however, is it was unable to ship its iron-nickel ore out of Indonesia due to the export ban by the Indonesian government.

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Arrested development: why Indonesia lifted its mining export ban
By Eva Grey

The Indonesian Government is hoping to kick-start its economy by lifting a partial ban on exports of metal ore and mineral concentrates, a policy originally aimed at boosting domestic processing and reducing the South East Asian nation’s exposure to volatile commodity prices. Julian Turner reports.

https://www.mining-technology.com/features/featurearrested-development-why-indonesia-lifted-its-mining-export-ban-5760809/

In January, the Indonesian Government ended months of speculation by lifting its partial ban on the export of unprocessed minerals, underlining not only the parlous state of South East Asia’s largest economy, but also its status as a major supplier of nickel ore and bauxite, for aluminium production.

The controversial policy was intended both to boost smelting capacity by developing higher value domestic processing facilities and reduce Indonesia’s exposure to volatile global commodity prices.

Instead, mining industry leaders such as Tedy Badrujaman, CEO of state-controlled Antam, which had its numbers hit hard by the ban on nickel ore exports in 2014, argued that the law not only hurt revenues but also threatened to decimate local economies, particularly in Kalimantan and Sumatra.

Faced with industry unrest, a significant budget deficit, and having missed its 2016 revenue target by $17.6bn, the government under President Joko Widodo had little choice but to perform a volte face.

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"Chinese companies will be most unhappy because they have invested something like $15bn in developing smelters that are already in operation."

Jonatan Handojo, executive director of the Processing and Smelting Companies Association (AP3I), told Reuters that the new policy "damages Indonesia's image throughout the world and makes us look like our laws and regulations can be changed just like that".

"Chinese companies will be most unhappy because they have invested something like $15bn in developing smelters that are already in operation," Handojo said, adding that the flip-flop nature of Indonesian policy-making could potentially damage the country’s economic relations with China.

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Mining contributed 14% to total export revenue in both 2014 and 2015, a figure the government expects will increase once its processing and refining facility construction programme is complete.

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No let-up in China’s nickel ore imports
Xiaolin Zeng, east Asia | 30 May 2018

https://fairplay.ihs.com/bulk/article/4291306/indonesia-resumes-nickel-ore-exports

China’s nickel ore imports are expected to grow significantly in 2018, after doubling year on year (y/y) in the first quarter of 2018.

Nickel ore is a key ingredient in the production of stainless steel, and China accounts for 54% of global stainless steel output. Indonesia supplied 50% of the 6.6 million tonnes of nickel ore that China imported in the first quarter of 2018, after a ban on raw ore exports was partially lifted in 2017.

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China’s stainless steel production increased by 3.4% y/y in 2017 to 25.7 million tonnes.

The relaxation of the export of raw ores saw Indonesia’s nickel ore exports to China rise 11-fold to 3.3 million tonnes in the first quarter of 2018. During the same period, the Philippines, China’s second-largest source of nickel ore, shipped 2.64 million tonnes of the commodity to China. Imports from the Philippines were up 14% y/y, even as the country has been restricting nickel ore mining because of environmental concerns.

Indonesian nickel ore exports to China peaked at 41 million tonnes in 2013, prior to the aforementioned ban being imposed in 2014.

Since then, China has sought out alternative sources, such as New Caledonia and Guatemala, boosting tonne-mile demand for bulk carriers.

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