JAKARTA – Doubling down on Indonesia’s value-added mineral policy which has drawn fire from the World Trade Organization (WTO) and European importers, a defiant President Joko Widodo insists his administration will go ahead with its plan to ban bauxite exports in June next year.
Widodo made the announcement only days after returning from a visit to Brussels where he told the Association of Southeast Asian Nations (ASEAN)-European Union (EU) summit that relations between the two regional blocs had to change.
“If we want to build a good partnership, then (it) must be based on equality, there should be no coercion,” he said in a surprisingly assertive statement. “There should no longer be anyone dictating and assuming their standard is better than others.”
“Indonesia wishes to underline the fact that developments that have added value and inclusivity will help support the world’s economic resilience,” he continued. “In this case, Indonesia will continue to build our downstream industry.”
The government acknowledged it will initially lose an annual US$500-600 million in export earnings, but Economic Coordinating Minister Airlangga Hartarto says increased refining will boost state revenues from 21 trillion rupiah ($1.37 billion) to 62 trillion rupiah ($4.0 billion) a year.
Although the country’s three smelters produced 1.36 million tonnes of powdery alumina, or intermediate-stage aluminum oxide, in 2021, Indonesia still spends $2 billion a year importing finished aluminum for its domestic market.
![This picture taken in Kendawangan, West Kalimantan on Borneo island on February 13, 2017 shows piles of bauxite materials at a bauxite mining belonging to Harita group in Kendawangan. An overhaul of Indonesian mining rules has sparked fresh concern for investors in a sector long plagued by uncertainty and triggered a fierce battle with one of the world's biggest miners. / AFP PHOTO / ADEK BERRY / TO GO WITH AFP STORY: Indonesia-mining-economy, FOCUS by Sam Reeves](https://i0.wp.com/asiatimes.com/wp-content/uploads/2017/11/Indonesia-Mining-Bauxite-Harita-Group-West-Kalimantan-February-13-2017.jpg?resize=780%2C519&ssl=1)
It is expected another eight refineries will be in operation by 2025, with alumina production eventually rising to 12.6 million tonnes, compared to the existing world output of 141,465 tonnes.
Industry players are worried, however, about the availability of clean energy to run the smelters in a province that has only 425 megawatts of electricity capacity. Many banks and other financial institutions are refusing to fund projects that use coal-fired power plants for future operations.
The government is relying on a proposed 9,000MW hydro plant on the Kayan River, which will supply power to North Kalimantan’s 10,000-hectare Tanah Kuning Industrial zone, the expected site of future aluminum processing.
That will mean barging bauxite from the opposite side of Borneo island, a distance by sea of about 1,500 kilometers, but much still depends on whether Indonesia can attract the foreign investment needed for the $22 billion project.
Most of Indonesia’s bauxite was originally exported to China, by far the world’s largest aluminum producer. But that ended abruptly when the Indonesian government stopped exports of raw ore in 2014 in the hope of attracting new investment.
The lack of refinery capacity forced many mining companies to shut down, leaving 260 open-pit mines abandoned across the province. Instead of building their own smelters, the Chinese found suppliers in Africa and Jakarta finally dropped the ban in 2017.
Similar controversy attended a month-long ban on coal exports last January after stockpiles at local power plants plunged to critically-low levels, and a short-lived halt to palm oil shipments in May aimed at protecting domestic consumers.
Indonesia is currently appealing a WTO ruling that favored the EU in a dispute over Indonesia’s August 2019 decision to ban exports of nickel, the mineral that has driven its move to the forefront of the global electric battery industry on the back of massive Chinese investments.
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The WTO agreed with the EU claim that neither the prohibition of nickel exports nor the domestic processing requirement conformed with global trading rules. But Widodo, a former furniture maker, made it clear he would not be deterred.
“We want to be a developed country, we want to create jobs,” the president declared in a move that has the support of nationalist-minded Indonesians. “If we are scared of being sued, and we step back, we will not become a developed country.”
Industry sources say they understand Widodo made the bauxite announcement sooner than expected because he wanted to send a message to nickel fabricators that Indonesia’s policy would not be thrown off course by the WTO case.
The government looks set to go ahead with a ban on tin exports next year as well, but it will likely take longer to figure out the implications of imposing a similar probation on shipments of copper concentrate currently produced by only two mining companies.
The government is said to be waiting until local producers can absorb half of the annual output of 2.2 million tonnes of concentrate before lowering the boom; only one smelter is currently in operation, but two others are under construction.
The Ministry of Energy and Mineral Resources (MEMR) estimates Indonesia has 3.2 billion tonnes of bauxite, or about 4% of world reserves, most of it located in West Kalimantan and to a lesser extent in the Sumatran province of Riau where mining goes back to the Dutch colonial era.
The bauxite ban will initially put upward pressure on the price of refined aluminum, which peaked at $4,000 a tonne last March and now stands at about $2,400. But the longer-term outlook looks weak as the world economy begins to falter.
The Financial Times said in an editorial that Widodo was playing what it called “a dangerous game,” pointing to the damaging fallout from previous commodity restrictions and warning “he will soon run out of commodities to ban.”
Seemingly emboldened by the success of the recent G20 Summit and his first real deep dive into international diplomacy, the president insists the administration will continue to pursue its efforts to impose sovereignty over its natural resources.
![Illegal miners unregulated use of mercury and cyanide to extract valuable ores is causing environmental damage across areas of Indonesia. Photo: Facebook](https://i0.wp.com/asiatimes.com/wp-content/uploads/2018/10/Indonesia-Mining-Illegal-Miner-Facebook.jpg?resize=780%2C443&ssl=1)
Dating back to the controversial 2009 Mining Law, the value-added policy is meant to compel foreign companies to invest in smelters as a way of increasing foreign exchange earnings, boosting jobs and improving overall economic growth.
“The investment proposition is unappealing,” said the Financial Times, whose Indonesia-related news coverage has picked up in recent months. “Indonesia lacks infrastructure and reliable legal protections for foreign owners. Financing factories would be costly.”
“There is an equilibrium of benefits in the relationship between a resource-rich nation and customers,” the newspaper concluded. “Indonesia’s repeated efforts to skew this are counter-productive.”