Indonesia amends regulation on nickel export to boost production of value-added products

In a bid to expedite nickel processing domestically, the Indonesian Ministry of Energy and Mineral Resources (MEMR) issued MEMR Regulation No. 11/2019 amending MEMR Regulation No. 25/2018 on the Utilization of Mining Minerals and Coal (MEMR Regulation No. 25/2018).

Effective 1 January 2020 export of low grade nickel is forbidden, two years ahead of schedule, while MEMR Decree No. 154/2019 specifies the implementation of the smelting facilities requirement.

Nickel export restriction

Generally there are several points that were amended by MEMR Regulation No. 11/2019:

1. The ban on nickel ore export with content below 1.7% Ni is accelerated to 31 December 2019. Previously, companies were allowed to export the mineral until 11 January 2022, subject to progress of the company’s establishment of smelter facilities.
2. Any export recommendation that has been issued by the MEMR for nickel ore export with content below 1.7% Ni prior to the issuance of MEMR Regulation No. 11/2019 remains valid. However, that recommendation will expire on 31 December 2019. The MEMR Regulation No. 11/2019 will be effective on 1 January 2020.
3. The MEMR would still be able to issue export recommendation for nickel ore with content below 1.7% Ni until the 31 December 2019.

Smelter construction in Indonesia

With the objective of supporting production of value-added products domestically, the Indonesian Mining Law, Law No. 4 of 2009, obliges companies to process and refine mining minerals in Indonesia.

Indonesia first announced the nickel ore export ban in 2014 that was relaxed in 2017 to a quota system, following strong market rejection. Ministry of Energy and Mineral Resources (MEMR) Regulation No. 25/2018 allows for export of certain types of mining minerals until 2022 provided that minimum requirements for processing and refining are met; companies are required to build or are in the process of building smelters for relevant mining minerals in Indonesia.

The MEMR Regulation No. 25/2018 regulates several points in relation to the issuance of export permit:

1. Ninety percent of the smelter’s physical construction development plan should have been completed, calculated and verified by an independent verifier.
2. Sanctions on failure to meet the 90% smelter construction plan would be: (a) recommendation to revoke the export approval to the relevant authority and (b) a penalty of 20% of the export cumulative value
3. Failure to pay such penalty would result in: (a) a temporary suspension of a certain part or all aspect of business activities for maximum 60 days and (b) a license revocation if no payment is received after the 60 days.

To specify these provisions, the MEMR issued Decree No. 154/2019:

1. The progress for smelter establishment should be at least 90% of the smelter’s physical construction development plan for every six-month period based on the report of an independent verifier.
2. Failure to satisfy this obligation would result in: (a) the issuance of temporary export suspension recommendation to the relevant government authorities in charge of international trade and (b) penalty of 20% of the export cumulative value in the last six months period.
3. Failure to pay the penalty would result in: (a) temporary suspension of certain part or entire business activities for maximum 60 days, (b) license revocation if no payment is received after 60 days of the temporary suspension, and (c) the issuance of export suspension recommendation to the relevant government authorities in charge of international trade.
4. To guarantee the 90% smelter establishment completion progress and penalty payment, mining companies are required to deposit a surety bond of 5% of export volume for each shipping multiplied by the export benchmark price. A mining company will be entitled to withdraw the surety bond if it has completed at least 75% of the overall smelter construction plan. The government holds the rights to the surety bond if the mining company fails to meet its obligations.

MEMR Decree No. 154/2019 came into effect on 26 August 2019. Mining companies that export nickels with content below 1.7% Ni are subject to its provisions until MEMR Regulation No. 11/2019 is effective on 1 January 2020.

Indonesia’s plan on producing value-added products

The Indonesian government has stated that the country would phase out exporting raw materials to encourage the production of value-added products, including minerals. This is in line with the country’s aspiration to build on skilled workforce and high-tech industries.

Early in September, the director general of the Ministry of Energy and Mineral Resources said in a national publication that Indonesia currently has 11 smelters in operation with 25 more expected to come online.

As one of the world’s largest producer of nickel ore, Indonesia would like to utilize its nickel reserves to support its electric vehicle (EV) ambition, as refined nickel and cobalt are materials for EV batteries.

Indonesia is working towards its plan to be Asia’s production hub for electric vehicles for export in the APAC region.

For questions relating to the new regulations, please contact Kresna Panggabean and Rizky Lumempouw in Jakarta.