Government Allows Export of Some Minerals until 2017; Progressive Export Duty Imposed

Following the closing date for export of unprocessed minerals and the obligation of IUP holders and Contract of Work companies in the production phase to domestically “add value” to mining products by 12 January 2014, the Government has issued four regulations: (i) Government Regulation No. 1 of 2014 (“GR 1”), (ii) Minister of Energy and Mineral Resources Regulation No. 1 of 2014 (“MEMR 1”), Minister of Finance Regulation No. 6/PMK.011/2014 (“MOF 6”), and Minister of Trade Regulation No. 4/M-DAG/PER/1/2014 (“MOT 4”). The regulations allow certain key industry players to keep operating, while incentivizing the sector as a whole to make meaningful progress toward developing a minerals processing infrastructure.

Export May Continue

As a group, the regulations amend the mineral export policy originally stipulated under GR No. 23/2010 on Implementation of Mineral and Coal Mining Business Activities and its implementing regulations: (i) Contract of Work and IUP companies that partially process metal minerals may export certain processed minerals in limited quantities until January 2017, (ii) companies that purify metal minerals to stipulated standards may export in unlimited amounts, and (iii) companies that process non-metal minerals and rocks can also export in unlimited amounts if they process to legal standards.

Copper, Iron Can Still Be Exported; Nickel, Bauxite Cannot

To accommodate the need of some companies to carry on production, and mitigate the potential impact on employees of an outright export ban, MEMR 1 allows export of certain processed (as opposed to “purified”) minerals until 2017 for IUP OP and Contract of Work companies that meet requirements and obtain MEMR recommendation.

MEMR 1 revokes MEMR Regulation No. 7 of 2012 (which was annulled last year by the Supreme Court) and imposes a 2017 sunset date for exportation of processed metal minerals. The key lies in the distinction between purification and processing: while most minerals must be purified to very high standards in order to be exported, eight specific mining products can be exported with minimal processing, for three more years.

The standards for “processing” and “purification” are listed in the Appendices of MEMR 1. Concentrates and processed copper, iron sand, iron ore, zinc, lead, manganese, anode slime (lumpur anoda) and telluride copper (tembaga telurid) may be exported in certain amounts, provided that insufficient domestic refining facilities are available to reach the minimum level of purification. Other important minerals, namely nickel, bauxite, tin, gold, silver, and chromium, do not receive any such exemption—export is forbidden unless they are purified to the standards listed in the Appendices.

Progressive Export Duty, 20-60%

On the few substances that may still be exported with minimal processing, the Government has imposed a progressive export duty (bea keluar) under MOF 6. The tariffs are imposed gradually per semester, and vary among substances, ranging from 20% in the first semester of 2014 to 60% on 31 December 2016. The Government expects all metal minerals to be domestically purified by January 2017.

Export Approval Granted for Certain Processed Products after Survey

MOT 4 replaces the previous regulation from the Minister of Trade, which prescribed procedures for mining companies to obtain Export Approval (SP Ekspor) and Registered Exporter (ET) status in order to continue exporting mining products. As under the previous regulation, Registered Exporter status is granted to companies for three years, while each shipment must obtain Export Approval based on a recommendation from the Directorate General of Minerals and Coal and a technical assessment of the shipment by a licensed Surveyor. Registered Exporters and licensed Surveyors must file monthly reports on the realization of mineral exports. Companies that falsify documents, fail to report, or make shipments that differ from the Export Approval in terms of type or amount of mining products exported are subject to revocation of Registered Exporter status and are prohibited from reapplying for Registered Exporter status for a period of one year.

Industry Reacts

Members of the business community plan to request government review of the policies, particularly the amount of the export duty, on the basis that the new regulations are unduly burdensome and unfairly allow producers of certain minerals to continue exporting while other producers are effectively shut down until they can secure proper processing arrangements. The new policy, while intended to incentivize the fulfillment of domestic processing and refining by 2017, is perceived as counterproductive by companies that need more revenue from mineral sales to fund the construction of the required smelters and processing facilities.

22 January 2014,

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