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July 23, 2017

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Indonesia mining policy shift sparks fresh turmoil

JAKARTA -- A controversial U-turn on mineral exports has sparked turmoil in Indonesia's key mining sector, providing a fresh headache for firms struggling to work in Southeast Asia's biggest economy.

Despite sitting atop some of the world's most abundant natural resources, successive governments have failed to take advantage of its vast riches, with critics blaming badly thought-out and nationalistic policies that make the country an uncertain place to invest.

And the latest overhaul has sparked a potentially damaging standoff with one of the United States' biggest miners and a major investor in the country.

Jakarta in January relaxed a 2014 landmark ban on shipments of raw mineral ores, which was originally aimed at spurring the domestic smelting industry but led to mine closures, job losses and a fall in government revenues.

While some firms may stand to benefit from the sudden rollback, it has infuriated companies that invested large amounts in Indonesia on operations for smelting, the process of extracting metals from their ores.

In addition, the government asked firms to sign new permits that critics say offer less protection — triggering a standoff with U.S. giant Freeport-McMoRan, which has stopped shipments from its huge copper and gold mine in the east.

The move is the latest in a series of regulatory changes from the government that have caused jitters among miners, with some foreign firms choosing to exit Indonesia rather than deal with such an unpredictable environment.

"One of the inherent problems in the Indonesian mining industry over the last few years has been the lack of consistency in government policy, with the government changing its mind quite regularly and unexpectedly," Bill Sullivan, a Jakarta-based lawyer and mining expert, told AFP.

Authorities have raised taxes and royalties on shipments and demanded that foreign miners reduce the stakes in their Indonesian operations to less than half.

Heading for the Exit

In June, U.S. gold mining giant Newmont sold its share in an Indonesian mine to local investors after more than three decades operating in the archipelago, citing more onerous regulations as a factor.

And Rio Tinto, the world's second-biggest miner, is reportedly considering walking away from its stake in Freeport's vast Grasberg mine in Papua province owing to the current row.

Economic nationalists have pushed putting stricter conditions on foreign firms in a bid to reap greater profits from the industry, but critics fear the moves could backfire by scaring off investors at a time policymakers are already struggling to reignite slowing economic growth.

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