The long-term ban on unprocessed ore exports imposed by the Indonesian Government in January could affect the country’s economy, warned the development lender World Bank.
According to the bank, the export ban will affect Indonesia’s trade balance by about $6bn this year and incur losses of around $6.5bn from government revenues until 2017.
Following the ban, many mining companies across Indonesia, including the Harita’s Air Upas mine, Ketapang mine andWest Kalimantan mine, came to a grinding halt, hitting country’s economy in the first financial quarter.
The ban has forced Harita mine and its contractors to lose around 5,000 workers.
Harita bauxite mining division director Erry Sofyan was quoted by The Financial Times as saying that it is not only the mining companies that have been hit.
"There’s been a domino effect on the local shops and suppliers and many employees have had their motorbikes repossessed by leasing companies," Sofyan said.
Indonesia is a major supplier of bauxite, nickel and other minerals and the move by the government was intended to enocurage investment in costly domestic processing facilities, such as smelters and refineries.
Indonesia Ministry of Energy and Mineral Resources spokesman said the government wants to ensure that mining companies add value rather than just exporting their earth, and are willing to let companies start exporting again if they demonstrate that they are serious about building smelters or refineries.
According to Hong Kong’s Bernstein analyst Vanessa Lau, the returns on an alumina smelter in Indonesia could be as low as 6% a year over a 20-year production cycle.
Lau said the world is already filled with refineries and smelters, especially in China.
"By building a whole new production system in Indonesia, why is it going to be more competitive?," Lau added.