Malaysian government imposed a three-month ban on the mining and export of bauxite effective January 15 2016 after a dramatic boom in the mining and export of the mineral to China. A perfect example of an ideal situation going wrong for lack of systematic regulation, Malaysian bauxite ban has put a flourishing industry to a standstill.

History

The transition started when Indonesia imposed a ban on ore export two years back creating a sudden lull in the hyperactive export market for China as the country was dependent almost entirely on Indonesian bauxite to run their alumina refineries. A number of countries came up to seize the market and provide an alternative source of bauxite for China. Australia took the first plunge and continued to export a large amount of bauxite to China. This prompted Indonesian mining houses to explore the bauxite reserve at the hills above Kuantan, which was not of as good quality as that of Australia and Indonesia but was available in plenty. It was easy for them to lure small local landowners by paying substantial amount of money and take the agricultural lands for mining.  By the end of 2014, bauxite mining started speeding up at express speed especially in Kuantan.

Over the last two years the amount of bauxite shipped from Malaysia to China increased almost one hundred fold making Malaysia the largest exporter of bauxite to China. Geographically Kuantan was the best choice for bauxite mining as the city faces the South China Sea by which bauxite could be easily shipped from Kuantan mines to China.

The Situation

In the first 11 months of 2015, Malaysia exported more than 20 million tonnes of bauxite to China, up nearly 700 percent from the previous year. In 2013, it shipped just 162,000 tonnes. However, this random bauxite production took a heavy toll on the environment of Malaysia. Across the Pahang province, land, vegetation, water bodies and homes had a layer of red bauxite dust all over them and there were complaints of water contamination and destruction of ecosystem by bauxite. The frantic pace at which bauxite mining was growing without any proper environmental rules and regulation created a sense of discontent among the locals who soon started raising their voices in protest.

Though there were news of new environmental guidelines for the mining industry by the Natural Resources and Environment ministry, no steps were taken by the state government for implementation. Finally, Malaysia imposed a three-month ban on bauxite mining amid worries over its environmental impact, potentially affecting exports of bauxite to Chinese smelters. This was indeed long overdue. Malaysian officials have had consistently delayed the process of regulating this money-spinning industry which eventually caused irreparable damage to the environment. The moratorium was the last resort for the government to control the ever deteriorating situation. Officials have cancelled about three dozen mining permits to stop this uncontrolled mining.  Malaysia’s natural resources and environment minister, Wan Junaidi Tuanku Jaafar, said in a news conference that the government would also freeze new permits for the export of bauxite for three months.

Review

Earlier, experts viewed Malaysia’s entry into bauxite mining after Indonesian ban as a game changer for the mining industry as it opened up an immediate and alternative source of bauxite for China, the biggest producer of aluminium and exporter of the white metal.  What’s ironic about Malaysia’s bauxite situation is that if this could have been a controlled, safe and well-regulated mining operation, it could have changed the economy of Malaysia which is mostly dependent on revenue coming from the tourism industry. It could have also benefitted the aluminium industry which is in constant need of bauxite. The sudden spur of mining growth and export brought immediate returns to the suppliers. The short-term outcome turned out to be much more than what the industry analysts had estimated earlier. The regulatory system of the government was overshadowed by the sudden boom that took the country by storm.

According to sources, in 2015, bauxite mining delivered USD $176 million to the operators, while the government officials have not been able to collect the royalties due to the government for bauxite mining permit yet. There were potentials of huge revenue earning through the hefty amount of bauxite exported to China in 2015.  But, it helped just a handful of mining operators and caused unjustifiable damage to the ecosystem. Bauxite residues have been believed to contaminate the water of the Sagu River at Kuantan. Though government report has confirmed that water has not been polluted by bauxite mining, naturalists in the country are insisting on getting independent reports done.

Looking forward

Malaysian bauxite ban has put a close on all mining activities compelling the government to correct the situation on immediate basis. According to geologist, Dr Habibah Jamil the Government of Malaysia should draw up more stringent procedures for the industry during the three-month moratorium so that in future mining is done taking all environmental aspects into consideration. According to Dr. Jamil, bauxite mining operations were started in a hurry without much research in order to seize the market share of Indonesian miners.

The Government of Malaysia ordered to clear the bauxite stockpile at Kuantan port with immediate effect within a month. The government has been strictly supervising the clearing process keeping close tabs on the bauxite stockpile at the Kuantan Port to avoid any additional hoarding. However, a huge quantity still remains to be cleared at the port area even after the lapse of the deadline. So far, only a fifth of the 10 million tons of bauxite stockpiled at the port has been exported successfully. Natural Resources and Environment Minister Wan Junaidi Tuanku Jaafar said that the Chinese New Year holidays had affected its progress. According to the shipping sources, the process has been delayed since no new Approved Permits (APs) are being issued to export bauxite to China.

“We have asked the Kuantan Port authorities to limit the bauxite amount stored in the port area. For example, if it can only accommodate 1.5 million tonnes, they can only receive that much.” Mr. Jaafar added.

The government is now reviewing the granting process of Approved Permits to ensure the removal of remaining 2.4 million tonnes of bauxite from the Kemaman Port to China before April 14.

Another initiative taken by the government to ensure safe and regularised shipping of bauxite is that, from April end onwards, only Pakamatic (Paka) lorries will be permitted to transport the mineral from the mines to the port area.

Transport Minister Datuk Seri Liow Tiong Lai said, “We will make sure that only sufficient amount of bauxite is sent to the port each day and it needs to be exported on the same day.” The shipping industry hopes the moratorium will bring positive results so that there will not be further disruption to their business.

In a recent update, Malaysian Stormwater Organisation vice-president Datuk Ahmad Fuad Embi said that about 1,200 hectares of land in Pahang, destroyed by unregulated bauxite mining could be rehabilitated within two years through the adoption of effective remedial techniques.

Summing up

Keeping aside what happened in Malaysia and the extent of environmental damage that was caused by open strip mining, the country can still look forward to a better situation after the ban expires in April. The government says the new restrictions imposed upon the Kuantan Port authorities and the granting process of Approved Permits are to ensure that the port and the surrounding areas are not polluted with bauxite and the mining and shipping process is regularised. Since now the actual revenue potential has been discovered, the country may expect a more regularised and environmentally sound bauxite industry in Malaysia. No matter how much we condemn the environmental damage of bauxite mining we cannot ignore the growth prospects of Malaysia as the largest exporter of bauxite to China.

China’s hunger for bauxite will not cease to increase in near term. Now, the discontinuation of an easy supply of bauxite may put China into the same situation where it was two years back when Indonesia imposed mineral exports ban. Australia and India might get indirect benefits from this moratorium and strengthen their position as a bauxite supplier to China. But when we consider the cost factor, Malaysia wins the race hands down and its position is not expected to be substituted by any other country during this three month’s break.