Shafted: Indonesia and the Philippines hobble the mining industry (The Economist – February 23, 2017)

JAKARTA AND MANILA – IN THE more rugged, poor and far-flung areas of the vast archipelagoes of Indonesia and the Philippines, mining is one of the few industries that shows much promise. Last year the Philippines exported nearly $1.7bn of minerals and ore—4% of the country’s exports. Mining employs over 200,000 people.

By the same token, the Indonesian unit of Freeport McMoRan, an American firm that operates Grasberg, a vast copper and gold mine high in the mountains of Papua, has paid more than $16.5bn in taxes over the past 16 years. Freeport plans to expand Grasberg; over the next 25 years it expects to cough up a further $40bn. Yet the governments of both countries are imperilling this bonanza.

Three years ago, in an effort to boost the economy by spurring domestic processing, Indonesia banned the export of unrefined metal ores. (Smelting copper ore adds little value, so it was exempted.) Mining collapsed: the output of bauxite, from which aluminium is refined, fell from 56m tonnes in 2013 to 1m tonnes in 2015 (see chart).

Some firms did begin building expensive smelters—but not nearly enough to process all the ore that had previously been mined. Indonesia now has the capacity to process 3m tonnes of bauxite a year, for example. Instead, the law’s most noticeable effects were the closure of hundreds of mines, the loss of thousands of jobs and a collapse in government revenue from mining.

In January the government—in search of jobs and revenue—relaxed the ban, allowing some exports of unprocessed nickel and bauxite for the first time in four years. But, perhaps to show that it was not a soft touch, it also insisted that all mining firms operating under an older, more secure form of mining licence, including Freeport, convert them into a newer sort in order to receive export permits.

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