By Wilda Asmarini and Kanupriya Kapoor
JAKARTA, Feb 4 (Reuters) – Indonesia’s mines minister, Jero
Wacik, has been on an unusual mission in recent months: finding
a way out of implementing his own government’s policy.
A smiling, well-rehearsed politician, Wacik was earlier
tourism minister, pushing the charms of his native Bali island
and other Indonesian attractions. In 2011, he was given the role
of supervising the country’s $6 billion-a-year mining sector
despite having no experience of the industry.
At the time, part of his job was to enforce a law President
Susilo Bambang Yudhoyono had pushed through, a bold ultimatum to
the mining industry: process your ores in Indonesia by 2014 or
stop exporting.
But around the middle of last year, the government came to
the conclusion that a ban on the export of ore would hurt the
economy and lead to job losses that would be damaging in the
2014 election year. Wacik tried postponing the law, but
parliament, already tired of the administration’s ambiguities,
wouldn’t play ball. He then tried to water it down, but was not
successful.
Now the ultimatum has come into force, a self-inflicted
crisis in a sector that accounts for 12 percent of the GDP of
Southeast Asia’s biggest economy.
“If this law was implemented completely, stopping
everything, there would have been mass layoffs,” Wacik told
reporters. “But if there was to be zero layoffs, the law could
not be implemented.”
“This was impossible. But the government had to find a way.”
Indonesia is the world’s biggest exporter of nickel ore,
refined tin and thermal coal and is an important producer of
copper and gold.
U.S. mining giants Freeport-McMoRan Copper & Gold Inc
and Newmont Mining Corp are among the hundreds
of miners that have suspended ore and concentrates shipments.
When the law was enacted in 2009, it went down well at home,
appealing to nationalist political sentiment at a time when
commodity prices were still booming. It gave miners five years
to stop exporting unprocessed ore and start investing in the
refineries and smelters they would need to stay in business.
But the policy looked less promising as commodity prices
came off the boil because of the slowdown in China. It also
became clear that very few miners were able to comply or ever
took the law seriously – and the result is that Indonesia’s
biggest export industry has come to a shuddering halt.
Hundreds of companies had told the government that they
would construct the necessary refining facilities as required by
the 2009 mining law. That proved to be wishful thinking.
“At the last minute, we evaluated all of their
preparations,” said Mineral Enterprise Director Dede Suhendra.
“The fact was that many of those documents did not match what
the companies had told us. They had promised to build smelters.”
EVERYBODY WAS ANGRY
In early December, lawmakers denied Wacik’s last-ditch
request to delay the implementation of the mineral export ban by
three years.
“Everybody was very angry that he was trying to introduce
these changes. We didn’t even listen to the rest (of what he had
to say),” said Bobby Adithyo Rizaldi, a lawmaker on the energy
and mines committee.
Given the fear of widespread layoffs, Wacik and his ministry
now had just five weeks to find a way to water down the ban to
save jobs and the economy, without breaking the law. And it went
on until the final hour.
Wacik fought his case in an eight-hour cabinet meeting the
evening before the ban was to go into force. He convinced
Yudhoyono to significantly dilute its provisions, including
changing the way the purity of concentrates was defined and
freeing some miners from the purvey of the law, according to
officials and ministers at the meeting.
But the new regulations were poorly defined and, at the last
minute, the finance ministry insisted on a progressive export
tax on concentrates, part of the move to force miners to process
minerals in Indonesia and add value to exports.
When the law came into effect on Jan. 12, there was
widespread policy confusion and one of the world’s biggest
mining industries swiftly shut down. Tens of thousands of people
have been made jobless, trade groups say.
“Our task is to create jobs. If the (new) policies cause
mass layoffs, well then we were wrong,” Wacik said.
However, he added the government’s action in the end “was a
good decision that is good for our country because it will
protect the environment and increase the value (of our
minerals).”
TRAIN WRECK
Indonesia is well known for its unpredictable regulatory
environment but nevertheless, the latest policy mishap stands
out. The government had since January 2009 to prepare for the
law, and in the end still had to rush out rules that only added
to the uncertainty.
“The whole situation we are facing now … has been like a
slow-moving train wreck,” said Andrew White, managing director
of American Chamber of Commerce in Indonesia.
It hasn’t helped that Wacik is an outsider to the mining
industry.
When Yudhoyono handpicked him to head the energy and mineral
resources ministry, few in the industry had heard of his name –
and Wacik himself had reservations about taking on the role.
An avid golfer who has a degree in mechanical engineering
from Indonesia’s Bandung Institute of Technology, Wacik is a
trusted adviser to the president and a top official of the
ruling Democratic Party.
Within his party, the minister is highly regarded because he
is a self-made man and made his way up to a senior position,
said two senior party officials. But critics describe the
64-year-old as arrogant and patronising.
Many in the industry viewed his appointment as a political
move by Yudhoyono.
“We know Jero Wacik has integrity but in some technical
aspects maybe his expertise is not that good,” said
parliamentarian Rizaldi. “His background is not in this business
(of commodities).”
Canadian-based think-tank Fraser Institute has said
Indonesia has become one of the worst countries to invest in
mining under Wacik’s watch, ranking it at the very bottom in a
2012 survey of 742 mining firms.
While mining firms await more clarity on the government’s
policy, Wacik has said the industry may have to undergo a
one-year transition period and that small miners may have to
reduce or momentarily halt operations.
“Once the smelters are finished, we will see mining
(resume),” the minister said. “Their ore will be taken to
domestic smelters. It cannot be taken to China or Korea. I think
this is a good way out.”
(Additional reporting by Fergus Jensen, Michael Taylor and
Jonathan Thatcher; Writing by Randy Fabi; Editing by Jason Szep
and Raju Gopalakrishnan)
