After two years of discussion and deliberation, Indonesia’s controversial ban on raw ore exports finally came into effect in January – although in a slightly watered-down form. A long-standing fear in the ore industry was that the ban would immediately apply to any minerals that fall short of 100% purity. At the 11th hour, however, Indonesian President Susilo Bambang Yudhoyono agreed to a “compromise” allowing certain concentrates to continue to be exported until 2017. The analysis from Norton Rose Fulbright is as follows.Not satisfied, Indonesia’s Mineral Entrepreneurs Association immediately filed a challenge to the Constitutional Court. And some of Indonesia’s bigger ore miners, who have concession rights under contracts with the government, are now threatening to launch arbitration proceedings for breach of contract. They say the government is intervening in their ability to export raw ore, which is a basic contractual right.The government’s compromise has some heavy qualifications:n export tax starting at 20% will apply until July 2014, then progressively escalate to 60% by July 2016The minimum purity of the concentrate must be 15%Exporters of nickel, bauxite, tin, gold, silver and chromium cannot take advantage of the compromiseThe exporters must commit to building a smelter, either alone or in cooperation with another party –including conducting a feasibility study and obtaining environmental approvals, which can be time-consuming at the best of timesThe government has the ultimate say in how much unrefined ore may be exported.So the power in this “compromise” really lies with the government, and not the ore miners.The proposed ban was well-meaning, although perhaps went a little too far. Initial thinking was that all mining companies must conduct their own refining activities, meaning each mining company must have its own smelter. As it stands, Indonesia has insufficient smelter capacity to cope with its production of raw ore. And if each mining company had to build its own smelter, it could cost them up to $1 billion, depending on the mineral. So ultimately, this would not “work”.The rationale is that Indonesia needs to shift from being an exporter of raw commodities to a manufacturer of higher value products. This would develop Indonesia’s downstream processing industry, potentially introduce new processing technology, increase domestic revenues and ensure availability of refined products for domestic use. This is in line with what the President has been saying for the last three years.Not all have agreed. Economists estimate the ban could cut revenue by $5 billion annually. Smaller mining companies started laying off workers before January, in anticipation of the ban. The Indonesian Chamber of Commerce and Industry announced in December that over 800,000 jobs are at risk. Even under the compromise, the tax implications have the potential to kill the business of the smaller ore players.The onshore processing requirement was originally foreshadowed in Indonesia’s landmark new mining law in 2009, which overhauled the entire mining concession system. Indonesian courts, the government and private enterprises have since been in a tug-of-war:In February 2010, the government regulated that the onshore processing requirement would take effect from 2014In February 2012, the government regulated that raw ore exports could not take place after May 2012. This left a 20-month gap between the export ban kicking in and onshore processing being requiredIn May 2012, the government back-tracked, saying raw ore exports could continue provided that a 20% raw ore export tax was paid, the exporter committed to building a smelter in Indonesia by January 2014, and government consent was obtainedIn September 2012, the Supreme Court agreed with mining associations that the raw ore export ban should be revokedIn April 2013, the Supreme Court struck down the entire regulationIn August 2013 the government responded by formally extending the deadline for the raw ore export ban to January 2014, again subject to tax and smelter commitments and government consents. But it did not strike down the raw ore export ban, as the Supreme Court had orderedIn late 2013, a Parliamentary Commission chipped in by rejecting a proposal that raw ore exports could continue provided a commitment was given to build a smelter.The arrival of the compromise ban appears to go against what the Parliamentary Commission said. In its final form, the compromise ban does allow ore producers to “cooperate” on smelting activities, so at least every ore producer no longer needs to build its own smelter.The battles look set to continue. Few smelters have been built since 2012, although a number are now planned. There are concerns that the “cooperation” with smelter owners may start to concentrate control of the ore processing industry in the hands of a few. The current Constitutional Court challenge is the fifth challenge in the court with respect to the 2009 law.The ban is part of a recent smorgasbord of regulations geared towards resource nationalism, in the lead-up to Parliamentary elections in April and Presidential elections in July. Advocating for foreign investment in mining is unlikely to score political points in the current environment. So it may only be after the elections that the future direction of Indonesia’s ore industry becomes clearer.