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UPDATE 2-Indonesia court scraps mineral export regulations

Fergus Jensen and Yayat Supriatna
Monday, 5 Nov 2012 | 8:07 AM ET

(Adds details, comment)

JAKARTA, Nov 5 (Reuters) - Indonesia's supreme court has scrapped a government ban on the export of unprocessed minerals, the country's chamber of commerce said on Monday, and urged the government to draft new mineral export rules.

The decision appears to clear the way for a resumption of mining by small scale producers hard-hit by regulations introduced in May that led to a suspension of much of their activity and sent shockwaves through the industry.

It also represents an apparent setback for the government, which instituted the reforms to increase revenue, conserve resources for domestic needs and boost the downstream mining sector as it pushes to make Indonesia a top 10 world economy.

The May 6 rules aimed to push miners into processing raw ores domestically to export higher-value finished metals. Mining executives said they hurt the sector at a time when commodity prices and investment faced pressure due to a global slowdown.

The Indonesian Nickel Association and the Association of Indonesian City and Regional governments (Apkasi) brought the case in which it asked the government to drop four chapters of the regulations.

``The supreme court agreed with some parts of our case and has ordered the central government to drop four chapters of the regulation, including chapter 21 on the mineral export ban,'' Indonesian Nickel Association chairman Shelby Ihsan Saleh said.

He told Reuters he was referring to Energy and Mineral Resources Ministry Regulation no. 7 on mineral processing.

The controversial section effectively bans miners from exporting raw materials unless they comply with subsequent rules on downstream processing, duties, and adhere to good mining practices.

MORE UNCERTAINTY

The latest decision could add uncertainty to an industry already uneasy over regulation.

``With the Supreme Court decision all the chapters (of the ban) have to be dropped as soon as possible and mineral exports will be regulated by the Trade Ministry,'' Natsir Mansyur, a senior official of the chamber of commerce, told Reuters.

He was referring to portions of the legislation that authorise the central government to oversee mineral processing and ban mineral exports.

``The Energy and Mineral Resource ministry has no right any more to regulate exports, including determining the mineral export quota,'' Mansyur added.

The regulations sent exports of nickel and other minerals soaring ahead of the ban and then plummeting when it was implemented. It hit exporters who operate with government-issued IUP contracts hard, especially small scale producers in areas such as Sulawesi.

Trade Minister Gita Wirjawan told Reuters he was looking into the issue and did not give further comment.

``MAJOR EMBARRASSMENT''

The supreme court case is linked to a separate Constitutional Court challenge to regional autonomy over mining, according to the Energy and Mineral Resources Ministry.

Any government decision on the matter would have to wait until this was resolved, Susyanto, the ministry's legal bureau chief Susyanto, told Reuters.

``What is being challenged at the Constitutional Court is a law. That has a higher legal standing,'' he said.

The Indonesian Chamber of Commerce and Industry, which has been tasked by the government to assist miners in adapting to its rules, says it is asking the Trade Ministry to help.

The decision, a copy of which was seen by Reuters, was published on Sept 12, according to an official at the Indonesian Nickel Association.

``This is certainly a major embarrassment for the government which has actually seen a lot of interest in the establishment of processing plants in the country as a result of the threat to stop exports,'' said Keith Loveard, head of risk analysis at Jakarta-based Concord Consulting.

``The government is now going to have to persuade investors to go ahead with plans for processing plant even though the threat of an export ban has been removed,'' he said.

(Additional reporting by Neil Chatterjee in Jakarta and Yuko Inoue in Tokyo; Writing by Matthew Bigg; Editing by Alex Richardson)