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September 26, 2017

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Indonesia mining policy shift sparks fresh turmoil

As resource-rich nations benefit from a jump in commodity prices after years of declines, the regulatory uncertainty means Indonesia may not fare as well.

The latest policy change has sparked a fierce row with Freeport, which says it has given the government more than US$16.5 billion in taxes and other payments since 1991.

The U.S. miner has refused to bow to the government's demands to sign a new deal without additional assurances, stopped work at Grasberg — the world's second-biggest copper pit — started laying off workers, and threatened to sue the government.

"Right now we are at an impasse with the government," Freeport chief executive Richard Adkerson said during a visit to Jakarta last month.

Under the changes to Indonesia's export ban, miners will be able to export nickel ore and bauxite as well as concentrates of other minerals under certain conditions, instead of having to process them in Indonesia.

The amendments went further than analysts had expected, although some exports are still banned.

Chinese Investment

For investors who have already ploughed money into constructing smelters, including many Chinese firms, the U-turn on the ban is a disaster.

"People who have invested millions of dollars in Indonesia can only pray now that the government will revoke the regulation," said Jonatan Handojo, executive director of Indonesia's main smelter industry association.

Despite the outcry, officials are unrepentant with the finance ministry predicting the reversal could boost government coffers by US$3.12 billion in the next five years.

Even if the government does not hit such an optimistic target, the policy overhaul may still turn out to be a good thing in the long term, said mining expert Sullivan.

"Indonesia is clearly being forced to rethink its position regarding resource nationalism and focus more on economic reality," he said.

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