Indonesian Government vs Contract of Work: Mineral Ore Export Rules
A coalition of civil society groups is ready to challenge Indonesia's new mining rules at the Supreme Court next week, specifically those rules that impact negatively on the longstanding Contracts of Work (Kontrak Karya) as well as the (re-)opening of nickel ore and bauxite exports. Late last week, the Indonesian government announced to ease the controversial ban on exports of mineral ore. The government was immediately criticized for this "flip-flop policy". The move could flood global markets and put pressure on prices.
Based on the new government regulation, exports of concentrate can only be conducted by companies that have a Special Mining Business Permit (in Indonesian: Izin Usaha Pertambangan Khusus, or IUPK). This pretty much forces companies that are still active in Indonesia under the old Contracts of Work to change the status of their contract, provided they want to export mineral ore.
Indonesian Energy and Mineral Resources Minister Ignasius Jonan said these miners are actually not forced to change their contract into a IUPK. However, if they remain active under the Contracts of Work, then they are only allowed to export processed minerals (in line with Law No. 4/2009 on Mineral and Coal Mining, better known as the "New Mining Law").
Back in 2009 the introduction of the New Mining Law was a shock as it included new regulations that breached the content of the longstanding Contracts of Work (for example, mandatory divestment and the mandatory processing of raw material before export would be allowed). Companies that have been active in Indonesia for decades, including Freeport Indonesia and Amman Mineral Nusa Tenggara (formerly known as Newmont Nusa Tenggara), are still active under the Contracts of Work today but had to renegotiate these contracts in order to be allowed to resume copper concentrate exports after 2014 when the mineral ore export ban was (partly) implemented.
Regarding nickel and bauxite exports, these had been banned since January 2014 and this ban was confirmed by a ruling of the nation's Constitutional Court (after it had been challenged). Hence, the spokesman for the civil society group says it breaches the constitution when these nickel and bauxite exports are allowed again.
For the next five years, the government will now allow nickel ore and bauxite exports again, the amount of which needs to be "comparable" to the exporter's smelting capacity. Moreover, exporters need to show progress with smelter development during these years. Jonan added that the new regulations require nickel miners to dedicate at least 30 percent of their smelting capacity to process low-grade ore (which is defined as having a nickel content of less than 1.7 percent). This low-grade ore is harder to process. Currently, Indonesia produces around 17 million tons of nickel ore each year, most of which - around 10 million tons - constitutes low-grade ore. Meanwhile, Indonesia's nickel smelting capacity is currently estimated at 16 million tons (but may grow to 18 million tons before the end of 2017).