The government’s policy to restrict ore exports dominated the news in the mining sector this year as it not only received negative reactions from local miners but also from other countries such as the European Union, which has threatened to sue Indonesia at the World Trade Organization (WTO) over the ban.

The government has been steadfast on enforcing the game-changing ban starting January 2020, three years after the preceding administration under Susilo Bambang Yudhoyono canceled a similar ban due to a lack of domestic smelters.

The government had initially planned to enforce the ban in 2022, but later brought it forward by two years to ensure a large enough ore supply for dozens of smelters that have begun operation.

“We have many smelters now, so the government wants to accelerate the development of downstream industries and will take the initiative by stopping nickel ore exports,” the ministry’s coal and mineral director general Bambang Gatot Ariyono told reporters on Sept 3.

Bambang’s statement came less than a week after the Energy and Mineral Resources Ministry issued Regulation No. 11/2019, which imposed the ban in January 2020.

However, Coordinating Investment Board (BKPM) head Bahlil Lahadalia unexpectedly announced on Oct. 28 that “nickel associations” had unanimously agreed to stop exporting nickel ore effective immediately. The announcement caused confusion among miners in the country.

Two days after Bahlil’s announcement, Coordinating Maritime and Investment Minister Luhut Pandjaitan — the strongman of President Joko “Jokowi” Widodo’s administration — declared a two-week ban on exports to investigate suspected foul play from miners ahead of the ban.

After such uncertainties, the government finally declared that it would stick to its earlier decision to enforce the ban in January.

“From reports that we’ve received, nickel ore exports have exceeded this year’s quota threefold,” he said.

Indonesia is the world’s biggest nickel ore producer, having contributed a quarter to the global supply last year, such that even Bahlil’s legally baseless announcement drove up global nickel prices by 1.2 percent to US$16,980 a ton on the London Metal Exchange.

Just last month, the European Commission, pressured by European manufacturers of stainless steel, a product partly made from nickel, sent a letter to the WTO protesting the ban that, according to the commission, “goes against WTO rules”.

Several observers justifiably criticized Indonesia over its inconsistency with the ban, but others argued that Indonesia had the potential to become a global downstream nickel producer in the coming years.

“If the current nickel export ban is supported by consistent legal and policy certainties, as well as sustained and immediate development of the processing and downstream industries, the resulting multiplier effect in reducing the current account deficit will be substantial in the long-term,” said economist Enrico Tanuwidjaya of Singapore’s United Overseas Bank.

“The Morowali [stainless steel] mill shows that downstream operations in Indonesia can be very competitive,” commented Vivek Lath, an associate partner at business consultancy McKinsey & Company, in reference to a mill in Southeast Sulawesi.

Even though funding shortfalls will result in 12 nickel and two bauxite smelter projects falling behind schedule — the Energy and Mineral Resources Ministry initially expected 41 and 11 such smelters operational by 2022 — ministry data shows that on-schedule smelter capacities could still absorb domestic production of both metals.

Funding projections for iron, copper, manganese, lead, zinc and anode mud smelters remain on target.

The ministry also tightened mining industry oversight by launching the Sales Verification Module (MVP) application. The app was launched in September for coal miners and in December for mineral miners. It automates the verification of coal and mineral transactions by cross-checking related data with multiple sources.

Bambang said the ministry would impose sales restrictions for failing to join the modules starting November for coal miners and January next year for mineral miners.

While the ministry marches on with new regulations, House of Representatives Commission VII overseeing energy — chaired by Gerindra politician Gus Irawan Pasaribu — has failed to issue a revised 2009 Coal and Mineral Mining Law as members had promised when coming to power five years ago.

Revisions primarily address issues related to domestic processing requirements, foreign ownership and the legal status of coal mining contracts of work, whose legal framework was based on the now defunct 1967 Mining Law.

Commission members had tried to accelerate the law-making process this year, which was their last year in power, but only got as far as receiving a token list of problematic revisions (DIM) from the government in September. The final few hearings were heavier with political rhetoric.

“It’s like this is the starting point. We still have a long way to go,” said Energy and Mineral Resources Ministry secretary-general Ego Syahrial.

The ministry also continued this year a domestic market obligation (DMO) policy that requires coal miners to sell 25 percent of their production domestically at below-market prices (less than $70 per ton). The policy, designed to ensure coal supply for state electricity company PLN, received an unfavorable response from coal miners.

“The DMO is well-meaning but the $70 price tag is not appropriate. We see it hasn’t helped any [coal miners] in the past two years. Instead, it distorted market prices,” said Indonesian Coal Miners Association (APBI) chairman Pandu Sjahrir.

Indonesian coal prices rapidly declined this year from $92.41 per ton in January to $66.3 per ton in December, according to the monthly coal reference price (HBA).

In the downstream coal mining sector, state-owned miner Bukit Asam signed commitments this year to build two coal regasification facilities in Indonesia by 2025. One facility will be in Tanjung Enim subdistrict, South Sumatra and the other in Peranap district, Riau.

“Firstly, we will produce dimethyl ether. It is a subsite for liquified petroleum gas, around 70 percent of which is imported,” said Bukit Asam president director Arviyan Arifin, “So don’t worry about its absorption.”

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