Opinion: Ban on Export of Non-Refined Minerals Fully Implemented

The Government of Indonesia has implemented a ban on the export of nonrefined mineral products. As a temporary and transitional measure, there is a possibility of obtaining a case-by-case exception for export of an amount of concentrates to be determined by the Government. This exception is only available until 11 January 2017 at the latest, subject to hefty and progressively increasing new export duties and only where the concentrates have a specified minimum metal content. Further, the temporary exception is only available to producers who can demonstrate concrete plans for construction of refining facilities or cooperation with those who are constructing such facilities.

Highlights:
? Full ban from 11 January 2017 on export of mineral products not meeting the processing and refining requirements set out in the new regulations ("non-refined mineral products").
? The Director General of Minerals and Coal can determine, on a case-bycase basis, that an amount of concentrates may be exported in the interim period before 11 January 2017, by giving a recommendation. However, this exception is not available for export of concentrates of the following minerals: nickel, bauxite, tin, gold, silver and chromium.
? The Director General will only give a recommendation to allow the export of a certain amount of concentrates where (amongst other things) the producer has demonstrated its seriousness to build a refining facility directly or through cooperation with another party (including, amongst other things, providing a feasibility study, approved environmental documents and schedule for development).
? The Director General's recommendation must be renewed every 6 months (based on progress in establishing the refining facility) and is used to obtain an Export Approval Letter from the Minister of Trade to permit export to occur.
? The Ministry of Finance has issued a regulation increasing export duties for the concentrates which are exported in the interim period until 11 January 2017. The export duty begins at 20% or 25% in 2014 (depending on the mineral) and progressively escalates to 60% for exports from 1 July 2016 to 31 December 2016. The stated intention in the Ministry of Finance's press release is to "push business actors to conduct mineral processing and refining by developing smelters".
? The same requirements also apply to parties who produce anode slime and copper telluride as a result of processing operations. These also cannot be exported unless further refined, except to the extent an amount is allowed to be exported pursuant to a recommendation of the Director General of Minerals and Coal.
? The concentrates which are exported in the transitional period (once approval is obtained) must also meet minimum processing requirements.
? The regulations apply to holders of IUPs, IUPKs and Contracts of Work.

Consequences:
? Export of raw ore is no longer permitted, only export of concentrates in limited amounts with the approval of the Government (determined on a case-by-case basis). Those concentrates must still meet the minimum processing requirements set down for those concentrates.
? Based on the regulations, all IUP, IUPK and Contract of Work holders will need to seek a recommendation from the Director General of Minerals and Coal before they can resume exports of any such concentrates.
? Mining companies who do not have plans for refining (either directly or with others) should not receive approval and consequently will not be able to export concentrates (or any other non-refined mineral products) until they produce concrete plans for refining (including a feasibility study for construction of the necessary facilities, approved environmental documents and so forth).
? We note that the process for approving environmental documents (eg AMDAL) can be expected to take at least 125 days (based on the periods legislated in the relevant legislation). Therefore, if a producer started a refinery construction project today and began the environmental approval process today (both of which are unlikely to be that rapid due to the necessary planning and preparation involved), it could be still be several months before they would be in a position to even apply for a recommendation from the Director General of Minerals and Coal for export of non-refined mineral products. Realistically, it may take more than a year for producers to formulate their plans, do a feasibility study and obtain an AMDAL, all assuming that it is economically feasible for them to do so.
? There may be a significant delay in obtaining a recommendation from the Director General of Minerals and Coal, even where the producer already has concrete plans for refining which they can put forward.
? A hefty financial burden is imposed upon producers wishing to export nonrefined metal products in the interim period due to the increased export tariff. This is deliberately intended to make export of non-refined mineral products progressively more and more uneconomic.
? There is no certainty that concentrates can continue to be exported all the way until to 11 January 2017 since the Director General's recommendation must be renewed every 6 months on a case-by-case basis and will be tied to progress in the development of the necessary refining facilities.
? The Director General has the discretion to decide the amount of concentrates that can be exported on a case-by-case basis. There is no certainty as to what this amount would be.
? In practice, we expect that many producers may not be able to resume exporting concentrates at all due to lack of well developed plans for refining (and therefore not being in a position to obtain a recommendation from the Director General of Minerals and Coal) or due to the financial burden imposed by the new export duties.
? Consequently, the existence of a potentially available temporary exception allowing export of some concentrates may be of little practical benefit to many producers.
? Producers will need to consider whether force majeure protection is available under existing export contracts to customers.

The above summary is based on our reading of the relevant regulations. These regulations are very new and it remains to be seen how the Government will interpret and enforce these in practice.

Relevant regulations:
? Government Regulation No 1 of 2014 on Second Amendment to Government Regulation No 23 of 2010 regarding Implementation of Mineral and Coal Mining Business Activities, promulgated on 11 January 2014;
? Regulation of the Minister of Energy and Mineral Resources No 1 of 2014 regarding Increase of Mineral Added Value Through Domestic Mineral Processing and Refining, promulgated on 11 January 2014;
? Regulation of the Minister of Finance No 6/PMK.011/2014 regarding Second Amendment on Regulation of Minister of Finance Number 75/PMK.011/2012 on Determination on Export Goods Which Are Imposed By Export Duty and Export Tariff, promulgated on 11 January 2014.

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