Indonesia’s gamble on ore export ban starts to hit home – by Ben Bland (Financial Times – May 7, 2014)

Ketapang, West Kalimantan – Two hundred huge hauling trucks used to hurtle down the 34km dirt road from Harita’s Air Upas mine to its river port every day, shipping bauxite for China’s resource-hungry aluminium industry.

But work at the sprawling site in Ketapang, West Kalimantan, and dozens like it across Indonesia ground to a halt in January after the government defied lobbying from this powerful industry by implementing a long-planned ban on the export of unprocessed

The move is designed to promote investment in costly domestic processing facilities, but critics, such as the World Bank, say it has damaged investor confidence and is threatening the state finances.

Economic growth fell to its slowest pace in five years in the first quarter as tens of thousands of workers were made redundant and mineral exports, which reached $11bn last year, were halted.

Harita, a family-owned conglomerate, and its contractors laid off nearly 5,000 workers in this poor, remote region where mining has been a key driver of employment since much of the remaining rainforest was obliterated by illegal logging a decade ago.

“It’s not only the mining companies that have been hit,” says Erry Sofyan, a director of Harita’s bauxite mining division. “There’s been a domino effect on the local shops and suppliers and many employees have had their motorbikes repossessed by leasing companies.”

The government of southeast Asia’s biggest economy, which is a key global supplier of bauxite, nickel and other minerals, has always insisted that such local pain is necessary to ensure national gain.

A spokesman at the ministry of energy and mineral resources says the government wants to ensure mining companies “add value” rather than just “exporting our earth”. The government is willing to let companies start exporting again if they show they are “serious” about building smelters or refineries, he adds.

Harita is one of dozens of mining companies that are struggling to convince the government that they are committed to constructing processing facilities while, at the same time, seeking a judicial review against the export ban.

Backed by China Hongqiao, a Chinese aluminium producer, it is digging the foundations for a $1bn refinery, Indonesia’s first such facility, which will turn bauxite into alumina to be exported to its partner’s aluminium smelters in China.

But the infrastructure in Ketapang and many of Indonesia’s mining regions is woefully inadequate.

At the 1,500 hectare site – the size of 2,000 football pitches – the companies are building their own 125 megawatt power plant, roads and jetty and they will need to import 1,000 workers from China to operate the facility from the end of 2016.

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