T

he fate of the country'€™s mining industry is in the hands of President Susilo Bambang Yudhoyono after legislators rejected the government'€™s proposal to ease the upcoming ban on raw ore exports.

Trade Minister Gita Wirjawan said Wednesday that the President had the final say on the issue.

The President will hold talks with the relevant ministers over the next few days to put an end to the debate, Gita said. '€œThe president will then decide.'€

From next month mining firms must process ores locally, giving added value to the commodities before export, a move that Indonesia has taken to spur growth in its downstream mining industry.

More than 100 smelters are currently under feasibility studies and 23 others are entering the commissioning phase. However, the question still lingers '€” will they be ready for operation by the start of next year and if so, would they be able to accommodate the sizeable amount of unprocessed ores usually exported?

Energy and Mineral Resources Minister Jero Wacik last week proposed to the House an exemption for miners that were committed to building smelters. But the proposal was rejected on the grounds that mining companies had been given plenty of time to build their smelters and their tardiness was proof that they were not serious.

Earlier this week, Coordinating Economic Minister Hatta Rajasa said that the government was still seeking a way to enable mining companies, with concrete plans to build smelters, to continue to export raw ore.

If the ban on raw ore exports is implemented, many companies will be faced with no other option but to temporarily suspend operations until their smelters are ready. The shutdown will not only cause massive layoffs but would also strike a heavy blow to the government'€™s revenues from taxes and royalties. The export ban will also hurt revenues from mineral exports.

Trade Ministry director general for foreign trade Bachrul Chairi said Wednesday that the implementation of the ore export ban would cause losses of US$7.13 billion from ore exports next year. However, when nine smelters, which were almost finished, were up and running they would add $1.97 billion from sales of processed minerals.

Indonesian Mining Association (IMA) deputy chairman Tony Wenas said that there should be a way to sidestep the law because it did not explicitly stipulate the ban on exports, but '€œonly required the mining companies to process their ores in domestic smelters'€.

According to him, the government needed to adjust the regulation on the purity limit of metals that could be exported. He said the government should, for example, review the ideal purity rate for copper, which is now set at 99 percent, as the processing cost to reach such a purity rate was not feasible for many local copper miners.

The ban on ore exports is set to worsen the country'€™s trade- and current-account deficits, putting more pressure on Asia'€™s worst-performing currency just as the US Federal Reserve prepares to taper its stimulus.

The ban, which is due to take effect after Jan. 12 following its endorsement by lawmakers on Dec. 5, comes as the rupiah has already plunged 20 percent against the dollar this year. It could worsen Indonesia'€™s 2014 current-account position by as much as 0.3 percent of gross domestic product (GDP), Citigroup Inc. said as reported by Bloomberg.

'€œUnless imports are lowered by the same amount then we won'€™t see the current account improving significantly,'€ Enrico Tanuwidjaja, an economist at Nomura, Japan'€™s largest brokerage, said in a Dec. 9 interview from Singapore. '€œThe final decision on the Mining Law will be important because it will set a precedent for what happens next,'€ including the possibility of export bans on other commodities, such as coal or palm oil, he told Bloomberg.