Some Resource Titans Not Thrilled With Indonesian Export Ban

Source: http://www.thejakartaglobe.com/business/some-resource-titans-not-thrilled-with-indonesian-export-ban/502670

 

The Jakarta Post | March 05, 2012

 

Jakarta/Balikpapan, East Kalimantan. Local representatives of major business associations in East Kalimantan have protested a government regulation that will ban the export of raw materials and unprocessed commodities, including coal.

“We explicitly refuse this policy. This will cause many coal mining companies to collapse,” Slamet Brotosiswoyo, the head of the Indonesian Employers Association (Apindo) in East Kalimantan, said on Monday. “This policy was made in a rush and we believe the government must review it.”

Last February, the government issued a ministerial regulation to implement a new law that would ban the export of unprocessed commodities.

The idea is that Indonesia can better capitalize on its natural resource wealth by ensuring that value-adding processes take place within its borders.

Under the regulation, after May 7 no new contracts for exporting raw materials can be signed. The export ban will go into effect in 2014 for all companies, no matter what their existing contract of work stipulates.

East Kalimantan’s resources are exploited by some of the country’s biggest coal companies, such as Bumi Resources unit Kaltim Prima Coal, Harum Energy and Berau Coal. In 2011, the province earned $36.33 billion from coal exports, or 95 percent of its total export earnings. Palm-oil was second with less than 2 percent.

Slamet said the coal export ban was unrealistic. Most producers in East Kalimantan ship their coal overseas, especially to China and India. He doubted the local market had the capacity to handle the raw goods.

He added that many producers had already signed contracts with overseas buyers to sell unprocessed coal, and revising the contracts could be problematic.

“Again, this regulation must be delayed,” Slamet said.

H.M. Fauzi A. Bahtar, chairman of Indonesia’s Chamber of Commerce and Industry (Kadin) in East Kalimantan, said adjusting to the new rules could pose problems not only for companies built around the status quo but also for ones doing business with them.

“The spirit of the regulation is good, but it must consider the capability of the country’s businesses,” he said. “Large investments have been made. If these companies have to bear the losses, it will have a massive multiplier effect.”

Industry Minister M.S. Hidayat said officials from India had questioned the new law.

“They asked why the existing policy had to be changed,” he said on Monday after meeting with a delegation from India led by Anand Sharma, the country’s trade and industry minister.

Hidayat said he asked the Indian delegation to build smelters in Indonesia to comply with the new regulation.

“They were critical of it, but I said this was for the sake of Indonesia’s national industrial growth,” he said.

Japanese investors have also questioned the new policy, but Hidayat said he had similarly advised them to build smelters here.

Indonesia will see 12 new smelters in operation by the end of 2014, Thamrin Sihite, director general of mineral and coal at the Energy and Mineral Resources Ministry, said in February. The smelters, which will help process the nation’s mineral and coal output, are owned by local and international companies, he said.

One local company, DH Energy, and its affiliated coal miner plan to build a coal upgrading facility able to produce up to five million tons of high-calorific coal products annually for the export market by next year.

Companies that breach the regulation will face sanctions, including the revocation of their mining licenses and the suspension of their shipping activities.