Reed Smith Client Alerts

The Indonesian government had been due to enforce an effective ban on the export of unprocessed mineral ores from 12 January 2014. It now appears that the ban will be more restricted than originally planned and aimed primarily at bauxite and nickel ores. The situation continues to develop and may have a significant effect on existing and future sale contracts and charterparties.

Indonesia’s Law No.4/2009 on Minerals and Coal Mining (the “Mining Law”) incorporated a requirement that mineral ores should be processed within Indonesia. The Ministry of Energy and Natural Resources would set minimum purity levels for each mineral product in order to require processing and purification before export. This would amount to an effective ban on the export of all unprocessed mineral ores.

The Mining Law built in a period of delay, with the ban due to take effect five years after the law came into force, i.e., on 12 January 2014.

However, in last minute changes the measures were eased to allow exports of many of mineral concentrates including copper, manganese, lead, zinc and iron ore. The minimum processing requirements for these products have been significantly lowered, effectively enabling mining companies to export those mineral concentrates. However, the ban still applies in its entirety to nickel ore and bauxite.

It is understood that the amended measures will be temporary, remaining in place until 2017, by which time mining companies are reportedly obligated to have built smelting facilities. These measures delay rather than reverse the processing requirements and the effective export ban put in place by the Mining Law. From 2017, all minerals exported from Indonesia must be fully refined.

Full details of these last-minute measures are yet to emerge, meaning that the exact position is not yet clear.

For bauxite and nickel ores, however, the effective export ban came into effect in full on Sunday 12 January.

What is the effect of the ban?

The export of ores which do not meet the required purity levels will be illegal under Indonesian law. There are apparently no exceptions being given for contracts existing at the time the ban takes effect.

Contracts for the sale and purchase of ores affected by the ban may become unenforceable as a result of supervening illegality. From an English law perspective, courts and tribunals are unlikely to enforce a contract which becomes illegal in the place of performance. Delivery obligations may also be affected by the operation of force majeure provisions.

Owners and charterers with vessels due to load cargo falling within the export ban may also be affected, depending on the exact terms of the relevant charterparty. Charterers may find that the cargo they have agreed to load is now non-contractual, which would entitle owners to refuse to load or require charterers to tender an alternative cargo. Significant off-hire disputes may arise as a result of any delays. Depending on the terms agreed, issues of unenforceability and force majeure may also be relevant to voyage and trip time charterparties.

Several vessels have recently faced lengthy periods of detention at Indonesian ports. Vessels which had finished loading and been through departure procedures were unable to obtain port clearance, and so were detained. The detentions appear to have been related to the impending ban, in that it was unclear whether the cargo on board those vessels was strictly legal.

Although the ban appears to have now been partially eased, there is still a certain lack of clarity as to exactly how the measures will take effect. This, combined with the last minute nature of these latest amendments, may well mean that these issues continue for the foreseeable future.

In order to minimise the risk of any problems arising, parties should thoroughly investigate any ore cargo to be loaded in Indonesia. Charterers should make detailed enquiries of their shippers; and owners should require their charterers to do so. Investigations should be conducted as far in advance as possible, with a view to minimising delays once the vessel arrives in Indonesia.

If you have any queries regarding loading cargoes in Indonesia or the contents of this alert, please contact the authors or your usual contact at Reed Smith.

Client Alert 2014-015