By Wilda Asmarini and Fergus Jensen
JAKARTA, Jan 8 (Reuters) - Indonesia's mining ministry sought to ease a controversial mineral export ban before its Sunday deadline, but still looked set to prohibit more than $2 billion worth of annual nickel ore and bauxite shipments.
Indonesian government officials are scrambling to pass regulations to ease a ban on unprocessed mineral ore exports from Jan. 12.
The ban aims to boost Indonesia's long-term return from its mineral wealth, but officials fear a short-term cut in foreign revenue could widen the current account deficit, which has undermined investor confidence and battered the rupiah.
"The (mining) ministry proposed that miners will be given flexibility to export concentrate or processed minerals until 2017," Sukhyar, director general of coal and minerals at the ministry, told reporters.
"After 2017, they will only be allowed to export metal or refined mineral," he said.
The mineral ban is one of Indonesian President Susilo Bambang Yudhoyono's biggest economic policy moves in his nearly 10 years in office.
Under the proposed regulations, miners such as U.S. giants Freeport-McMoRan Copper & Gold and Newmont Mining Corp would still be allowed to export copper, manganese, lead, zinc, and iron ore concentrate until 2017.
Freeport and Newmont, however, would not be allowed to ship copper concentrate after 2017. The two companies account for 97 percent of the country's copper production and currently refine only about a third of their copper output in Indonesia.
"The point here is ... around three years from now, they must purify," Sukhyar said.
The ministry decided to keep the ban on nickel ore and bauxite because of ample domestic smelters, he added. Indonesia is the world's top exporter of nickel ore.
Out of the hundreds of nickel miners in Indonesia, only PT Antam and PT Vale Indonesia currently process their ore domestically.
Last month, the mining ministry forecast nickel production would tumble 78 percent this year compared with 2012, while bauxite would plummet 97 percent.
Analysts expect global nickel prices to rise if Indonesia follows through on its ban.
"If there is a ban, we think there is considerable upside," said Citi commodities strategist Ivan Szpakowski, who forecast that the LME's benchmark 3-month nickel contract could rise as high as $17,000 a tonne from $13,465 currently.
Shares in Indonesian mining firms rose on the Jakarta stock exchange on Wednesday, with the mining index up 1.8 percent.
The proposal could still be tweaked and must be approved by the president, who is expected to support the changes.
"The president has asked us to consider all possibilities in the coming days so that we put (Indonesia) at little risk as possible," Energy and Mining Minister Jero Wacik told reporters. "The point remains that raw minerals must not be exported."
Yudhoyono's administration has backed policies aimed at generating greater profits and creating more jobs from the country's vast natural resources, with some success in tin, cocoa and palm oil.
Under the new rules, mining companies must process their ore before shipping it overseas, a measure initially passed in 2009 to boost the value of exports from Indonesia, the world's top exporter of nickel ore, thermal coal and refined tin.
But companies have hesitated to invest the hundreds of millions of dollars necessary to build smelters due to ample global refining capacity, low commodity prices, and Indonesia's history of backing away from controversial policies.
As a result, the ban could cause a significant decline in mineral exports and force companies who do not have refining capacity to lay off hundreds of thousands of mine workers.
The uncertainty has already hit production, with Singapore-owned nickel miner Ibris Nickel Pte Ltd becoming the first operator to halt operations.
Up to 200,000 workers at bauxite mines could lose their jobs under the proposed new rules, said Didie Suwondho, a senior official with Indonesia's influential chamber of commerce.
Indonesia exported $2.1 billion worth of nickel ore and bauxite in 2012, according to the central bank.