Resource Nationalism in Indonesia—Effects of the 2014 Mineral Export Ban Introduction to divest up to 51 percent of shares production, and 7 percent of nickel in ore to Indonesian entities within 10 years production (Bray, 2016b; Brininstool, Resource nationalism encompasses from the commencement of commercial 2016; Kuck, 2016a). Although Indonesia a broad range of political and economic operation. The intent was to increase was a major producer and the world’s actions taken by Governments to regulate the production of higher value products leading exporter of refined tin metal in the extraction of natural resources in order to boost Government revenue 2013, exports of unprocessed tin ore had within their borders. Policies such as derived from the mineral sector. been prohibited since 2002 and were increased tariffs or export restrictions In 2014, the Government amended not directly affected by the 2014 ban can have far-reaching economic the principal regulations of the mining (Tse, 2006; Anderson, 2015). Refined effects on international trade. As the law and issued temporary permits for tin production in Indonesia has declined Governments of several developing exports of partially processed minerals. in recent years owing to low prices countries consider enacting nationalistic The processing requirements for many (Anderson, 2016). policies, an examination of the 2014 minerals were decreased for a 3-year mineral export ban in Indonesia provides period and export duties were imposed Bauxite, gross weight an instructive example of the possible 60 at a progressive rate commencing at impacts of resource nationalism. 20% 20 percent in 2014 and increasing to Significant changes in the production 16% 60 percent by 2017. For example, purity 40 and trade of unprocessed (that is, ores 12% requirements for copper were reduced 12% and concentrates) and processed (that is, to 15 percent from 99 percent and refined metal) aluminum, copper, and 20 copper concentrates were subject to an 7% nickel before and after the export ban export duty of 25 percent. Processing 0 form the basis of this study. 1% requirements, expected to increase in The U.S. Geological Survey (USGS) 2017, are currently being reviewed by National Minerals Information Center Copper concentrate, copper content the Government (Asmarini, 2016). 1.5 (NMIC) tracks production and trade of mineral commodities between producer Mine Production, Processing, 6% and consumer countries. Materials flow and Trade 1.0 5% studies clarify the effects of an export ban on different mineral commodities In recent decades, Indonesia has 3% 3% 2% by assessing changes in production, been a major producer and exporter , in million metric tons 0.5 2% processing capacity, and trade. Using of several mineral commodities, extensive data collection and monitoring including bauxite, copper concentrate, 0 and nickel ore (fig. 1; all values for Commodity procedures, the USGS NMIC investigated Nickel ore, nickel content the effects of resource nationalism on copper concentrate and nickel ore are 1.2 reported as contained metal). Relative the flow of mineral commodities from 1.0 Indonesia to the global economy. to total world mine production in 2013, 31% Indonesia accounted for 20 percent of 0.8 27% 24% Legislation bauxite production, 3 percent of copper 0.6 in concentrate production, and 31 percent 0.4 18% In 2009, the Indonesian Parliament of nickel in ore production (Bray, 2016b; 14% 7% 0.2 passed a new Mining Law (Law No. 4) Brininstool, 2016; Kuck, 2016b). Following the ban on unprocessed 0 on Mineral and Coal Mining, to come 2009 2010 2011 2012 2013 2014 into full effect in 2014. Among the mineral exports in January 2014, Year production of bauxite and nickel ore requirements of Law No. 4 was the Figure 1. Indonesia’s annual prohibition of exporting unprocessed decreased dramatically, whereas copper mine production of bauxite, copper ores, the obligation to process and refine concentrate output decreased only concentrate, and nickel ore from 2009 the ores in Indonesia, and the requirement moderately. Relative to total world mine through 2014 labeled with Indonesia’s to pay higher export tariffs for specified production in 2014, Indonesia accounted percentage of annual world production mineral commodities. Also, foreign for 1 percent of bauxite production, (Bray, 2015b, 2016b; Brininstool, 2015, shareholders in companies were required 2 percent of copper in concentrate 2016; Kuck, 2016a, b). U.S. Department of the Interior Fact Sheet 2016 –3072 U.S. Geological Survey September 2016 Bauxite, Alumina, and Aluminum bauxite and aluminum exports decreased Tambang Tbk (PT Antam), as well as foreign-owned companies and numerous Bauxite, an aluminum ore, occurs from 20 percent of Indonesia’s exports in 2013 to only 6 percent in 2014. China’s small mining operations. Prior to the ban, as intensely weathered deposits in aluminum industry consumed 97 percent all bauxite produced in Indonesia was tropical regions. In 2013, Indonesia of the bauxite exported by Indonesia exported for processing, as no alumina produced a record output of 55.7 million between 2005 and 2014. Indonesia’s refineries and only one aluminum smelter metric tons (Mt) of bauxite, surpassing record bauxite production in 2013 was operated within the country. State- China to become the world’s second- attributed to stockpiling by Chinese owned enterprise PT Indonesia Asahan leading producer after Australia (fig. 1; alumina refineries in anticipation of the Aluminium (PT Inalum) imported Bray, 2016b). As a result of the mineral export ban (Bray, 2015b). Following alumina to produce aluminum metal at its export ban, bauxite production fell implementation of the ban, bauxite Kuala Tanjung smelter in North Sumatra. by more than 95 percent to 2.6 Mt in production in China increased, bauxite In anticipation of the export ban, 2014 and an estimated 1 Mt in 2015 stocks were drawn down, and production construction of several new facilities for (Bray, 2016a). Aluminum smelter output in Australia and Malaysia increased to domestic bauxite or alumina processing remained unchanged at 250,000 metric meet demand from China (Rusmana, was proposed; among these were four tons (t) in 2013 and 2014 (fig. 2; 2015; Bray, 2016a). alumina refineries and two aluminum Bray, 2015a). The dramatic decrease in bauxite smelters with reported design capacities Bauxite export revenue declined production after the export ban reflected (table 1). In 2014, PT Antam produced from $1.3 billion in 2013 to $46 million the lack of downstream processing bauxite for a chemical-grade alumina in 2014 (fig. 3; United Nations Statistics capacity and poor integration between refinery in Tayan, West Kalimantan, to Division, 2016). Relative to the total bauxite mines, alumina refineries, be operated by PT Indonesia Chemical value of exports of mineral commodities and aluminum smelters in Indonesia. Alumina, a jointly controlled entity containing aluminum, copper, and nickel, Indonesia’s bauxite producers include owned by PT Antam (80 percent) in processed and unprocessed forms, state-owned enterprise PT Aneka and Japan-based Showa Denko K.K. Unreported Alumina 216 Aluminum Alumina Aluminum flows imports imports imports imports 1,300 61 Smelter Refinery Smelter Refinery Aluminum 107 Aluminum 155 258 Aluminum 250 285 Aluminum 250 Aluminum Aluminum Bauxite Unreported exports Bauxite exports Bauxite mine flows 95 exports 143 mine Bauxite production 8 57,000 production exports Unreported 55,700 2,600 2,085 flows Stockpiled 35 for chemical- grade alumina Refined Refined Copper Copper production copper copper concentrate concentrate 515 imports imports Copper imports 15 Copper imports 5 concentrate 89 109 Smelter Refinery concentrate Smelter Refinery Refined copper 143 Refined copper 122 Copper mine 203 Copper anode 214 232 Copper anode 232 373 production Refined 504 Unreported Unreported Refined copper Copper mine flows Copper flows copper Copper export production 301 4 concentrate 5 export concentrate 71 exports 110 exports 141 Smelter Smelter 94 177 96 Nickel mine Ferronickel Nickel matte Nickel mine Nickel matte production production production production Laterite Ferronickel production 834 Laterite 18 76 ore production 79 ore exports 17 exports 81 740 2013 2014 Figure 2. Flow diagrams of Indonesia’s aluminum, copper, and nickel industries during 2013 and 2014. Quantities are in thousand metric tons of metal content, except for bauxite, which is in gross weight; alumina is produced from bauxite at a ratio of 1 to 2 and has an aluminum content of approximately 50 percent. Arrow widths are proportional to quantity of contained metal, except for bauxite in 2013, which is scaled to 10 percent of its actual width. Sources: Bray, 2015a, 2016b; Brininstool, 2016; Kuck, 2016a, b; PT Aneka Tambang Tbk, 2016a, p. 103; PT Vale Indonesia Tbk, 2016, p. 112; United Nations Statistics Division, 2016; Wacaster, 2015. 2 (20 percent). The share of foreign 1,200 ownership complies with new regulations EXPLANATION and Showa Denko K.K. has an offtake Unprocessed Processed August 2014 Bauxite Aluminum copper concentrate 1,000 contract to sell 70 percent of the Copper con- Copper export permits issued production capacity (Jensen, 2015). centrate Ferronickel The Tayan refinery has the capability to Nickel ore Nickel matte consume roughly 850,000 wet metric 800 January 2014 tons per year (t/yr) of bauxite to produce export ban 300,000 t/yr of chemical-grade alumina implemented at full capacity; commercial operations 600 commenced in 2015 with production of nearly 70,000 t (PT Aneka Tambang Tbk, 2016a, p. 28). At full production, the 400 amount of bauxite consumed annually Value, in millions of U.S. dollars by the Tayan refinery represents less than 2 percent of 2013 production and 200 is therefore not expected to significantly increase mine capacity utilization by the domestic bauxite industry. 0 In addition to the chemical-grade D J F M A M J J A S O N D J F M A M J J A S O N D alumina refinery, PT Antam partnered 2012 2013 2014 with PT Inalum and Aluminum Month and year Corporation of China Ltd.