by Peter BRIEGER / AFP
Indonesia’s surprise plan to roll out a nickel-ore export ban two years early could scare foreign investors away from Southeast Asia’s biggest economy, analysts say, as it cements a reputation for policy flip-flops.
Nickel prices soared this week on supply concerns after Indonesia, the world’s top producer, announced the ban would start next year instead of 2022 in a bid to process more minerals at home.
Ending exports of bauxite, used to make aluminium, and copper concentrates is still slated for 2022.
The sprawling archipelago has some of the world’s most abundant natural resources. But critics say it repeatedly comes up with poorly thought-out and nationalistic economic policies that make it an uncertain place to invest.
“This decision casts huge doubt in people’s minds about the reliability and consistency of Indonesian government policy,” said Bill Sullivan, a Jakarta-based lawyer and mining expert.
“It’s just a wonderful example of something that plays to the very worst fears of foreign investors… Changing at the drop of a hat and without warning,” he added.
The sped-up timeline has also alarmed some Indonesian miners who thought they had more time before the ban came into effect.
Indonesia implemented an ore export ban in 2014 only to reverse course and relax it in 2017, when the government said companies would have five years to prepare and start building homegrown smelters — which extract base metals from ore.
“There have been so many U-turns it would make your head spin,” Sullivan said.
Indonesian officials said they want to speed up construction of smelters to churn out higher-value products, rather than just shipping raw ore abroad — including to top importer China which uses nickel to make stainless steel.
The move is also key for plans to turn the country into an electric-vehicle hub. Nickel is used in lithium batteries that power gas-free cars.
“The government wants to become a global player and enter the lithium battery supply chain given the raw materials Indonesia has,” Luhut Pandjaitan, coordinating minister overseeing mining, said this week.
Some foreign firms are investing in nickel-battery processing plants in Indonesia, including China’s Tsingshan Holding Group, while construction is underway on some two dozen domestic smelters, according to the government.
“Accelerating the export ban is a good thing,” said Marwan Batubara, executive director of think tank Indonesian Resources Studies.
“We need to maintain our stocks for domestic needs. Many factories and smelters won’t have enough raw materials otherwise.”
But some foreign miners, including US-based Newmont, have been turning away from Indonesia in recent years, as it pushed overseas firms to comply with new ownership rules designed to give the country more control of its plentiful resources.
Last year, Indonesia finalised a deal with US mining giant Freeport-McMoRan to take a 51 percent stake in Grasberg, site of the world’s biggest gold mine, after years of bitter negotiations. Freeport continues to operate the giant gold-and-copper facility in easternmost Papua.
“This is not favourable for foreign investment,” Sabrin Chowdhury, a senior commodities analyst at Fitch Solutions in Singapore, said of the latest move, adding that previous government policies had forced “a lot of foreign miners leave”.
Switching to higher-value mining exports could help plug a gap in Indonesia’s trade balance, as it courts automakers to invest in electric-vehicle facilities, including Toyota and Korea’s Hyundai.
The very immediate implication is that nickel prices are soaring and this benefits local miners,” Chowdhury said.
“Indonesia is the world’s largest producer of nickel ore which is used extensively in EV batteries so it makes sense to invest in the country if you are an electric-vehicle maker.
“But considering how uncertain Indonesian politics is, if I were an investor I’d think twice.”
While the ban may help boost the economy as president Joko Widodo kicks off a second term, it also threatens to scare away firms in capital-intensive industries that may be eyeing investments in Indonesia, Sullivan said.
“The irony is that is precisely the kind of industry that Indonesia is trying to attract.” – AFP