Indonesia’s ore export ban may be suspended until 2022

Global Publication January 2017

The zigzags on Indonesia’s raw ore export ban continue.

This month, as D-Day approached for the ban to be fully implemented, the Indonesian government again made a last minute compromise, the effect of which is to potentially suspend the full ban until 2022.

Exports of certain amounts of mineral concentrates, or semi-processed mineral ores, will continue for five years, provided that there is a commitment from the exporters for smelter construction. The commitment requirement has been in place for some time for exporters – however, this will now be more heavily policed by the Government, to ensure commitments stay on target.

The new exemptions are low-grade nickel with content below 1.7 percent, washed copper concentrates, and washed bauxite.

Recent history

The 2009 mining law contemplated that all raw ore processing should be conducted onshore, which naturally evolved into a ban on raw ore exports, and a requirement for smelter construction.

The original plan was for a blanket ban on all raw ore exports. However, as the original kick-in day drew nearer, it was clear there was insufficient smelter capacity in Indonesia for all processing. An eleventh hour compromise in January 2014 allowed for export of certain concentrates with minimum purity of 15 percent, provided a substantial export tax was paid.

In August 2014 the government offered a further carrot for smelter development by reducing export tax for companies that committed to construct smelters.

The more progressive the smelter development, the lower the export tax. This was followed by a relaxation of foreign investment restrictions for companies that conduct their own processing and refining.

New regulation

The postponement of the ban on semi-processed mineral ores is, among other things, recognition that there are just not enough operating smelters in Indonesia at the moment to support immediate and full implementation of the ban. This relief is in the form of a government regulation/ministerial decree, not a change to the 2009 mining law. Indonesia nevertheless still appears committed to achieving full onshore processing, as originally envisaged in 2009.

Exports and smelter development

  • Approval to export certain mineral concentrates of semi-processed mineral ore will be granted until January 2022.
  • Approval requires a recommendation from the Minister of Energy and Mineral Resources (MEMR), which will be granted only upon commitment by the exporter to construct processing and refining facilities.
  • Facility plans must be submitted.MEMR shall review the status of smelter construction every six months. Any company which has not achieved 90 percent of scheduled progress will have its export recommendation revoked.
  • There is potential for processing and refining activities to be conducted in cooperation with other concession holders, whether mining companies or mining/processing companies.

Indonesian interests

  • As was previously the general rule, foreign mining concession holders are not permitted to hold a majority stake in mines in production.
  • Divestment commences after the fifth year of commercial production, as follows:
    • 20 percent in the sixth year
    • 30 percent in the seventh year
    • 37 percent in the eighth year
    • 44 percent in the ninth year
    • 51 percent in the tenth year.

The date of commencement of commercial production, while previously unclear, has been clarified as the date of issue of the mining business licence (Ijin Usaha Pertambangan or IUP).

  • A previous exemption to the divestment rules and incentives for foreign investment in smelters, allowing up to 60 percent foreign investment where mines conduct their own processing and refining, has gone, along with an exemption allowing up to 70% foreign investment for underground mining.
  • As previously, the pecking order for offers in the divestment process is:
    • first, to the national government
    • second, to the provincial/regional government
    • third, to state-owned and region-owned companies
    • if none of the above takes up the offer, only then to national companies.

End of COW system?

The 2009 mining law included a confusing provision which stated that Contracts of Work (COWs) would remain valid for their stated period, but had to “adjust” to comply with the new law. A Presidential Task Force was set up to “renegotiate” COWs. The key points for renegotiation included divestment and royalty obligations. Some COW holders entered into arrangements with the government which foreshadowed, or actually effected, amendment.

The 2017 regulation takes this a step further by potentially forcing COWs to convert to a special mining licence (Ijin Usaha Pertambangan Khusus or IUPK) in order to obtain an export licence for concentrates/semi-processed ore. In other words, a COW holder that is not refining 100 percent of its export production must convert the COW to an IUPK in order to obtain an export permit.

This means that COWs with lex specialis status (ie where their provisions are frozen in time and immune from changes in law and regulations) will no longer have this privilege, once converted to IUPKs.


The immediate winners from the postponement of the raw ore export ban appear to be larger players that have not yet constructed smelters, and have a window for export.

The loudest criticism has come from those that have already invested in Indonesia’s smelter industry. Following January’s announcement, both nickel prices and shares in smelter investment companies tumbled. A major Chinese investor indicated it was considering joint legal action with others impacted by the postponement.

This is ironic, as when the ban was first introduced in January 2014, it was Japan, which derived a substantial amount of its nickel ore from Indonesia, that threatened to challenge the ban via the World Trade Organisation.

While there are some concerns that Indonesian low grade nickel could now flood the world market, not all players would lose out if that occurred.

It is almost inevitable that postponing the ban on metal ore exports will boost Indonesia’s trade and local economies, and create new job opportunities for mine workers laid off when the ban was first introduced. As for China’s steel industry, easing the ban is likely to be welcomed if it ultimately drives down the cost of nickel.

Postponement of the ban does not mean Indonesia has lost sight of its ultimate goal of onshore processing. The government has simply moved the target date back to 2022. In the meantime, increased government monitoring should encourage further smelter development.

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