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Indonesian Mining Regulatory Review 2023

Mining Regulatory 2023

Indonesia is one of the world’s largest producers and exporters of coal, nickel, tin, gold, and other minerals. The mining sector contributes significantly to the country’s economy and foreign exchange earnings.In this article, we will review the current mining regulatory framework in Indonesia and provide some insights into the outlook in 2023.

  1. New Provisions for Mining Work Plans and Funding Budgets (RKAB)

In accordance with the mandate under Regulation of Government No. 96 of 2021 concerning the Implementation of Mineral and Coal-Mining Business Activities (“Regulation 96/2021“), the Minister has decided to make adjustments to various provisions related to Mining Activities. This has been accomplished through the issuance of Regulation No. 10 of 2023 on Procedures for Drafting, Submission and Approval of Work Plans and Funding Budgets, as well as Procedures for Reporting the Implementation of Mineral and Coal-Mining Business Activities (“Regulation 10/2023“), which became effective on September 11, 2023.

Upon coming into effect, Regulation 10/2023 simultaneously nullified and replaced Regulation No.7 of 2020 on Procedures for the Granting of Areas, Licensing, and Reporting for Mineral and Coal-mining Business Activities (“Regulation 7/2020”). It is important to note that while Regulation 10/2023 still addresses matters specifically related to the drafting and submission of Work Plans and Funding Budgets (RKAB) and reports on the implementation of Mining Activities, it no longer includes provisions on the granting of Mining Business License Areas (WIUP) and Mining Business Licenses (IUP), or information systems for mining areas, as was the case under Regulation 7/2020.

Additionally, Regulation 10/2023 specifies that the provisions related to RKAB under the new framework are also applicable to Contracts of Work (KK) and Coal Contracts of Work (PKP2B). Moreover, RKABs that had already been approved or in the process of approval before the enforcement of Regulation 10/2023 will remain valid or continue to be processed in accordance with Regulation 7/2020.

RKAB
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Required Parties to obtain RKAB

Regulation 10/2023 now adjusts which holders of IUP and IUPK are required to comply to obtain RKAB, as detailed below:

Mining Permit Holders

Regulation 7/2020

Regulation 10/2023

IUP

Exploration Phase

Production – Operation Phase

Special Production–Operation for Processing and/or Purification

IUPK

Exploration Phase

Production–Operation Phase

Continuation of Contract or Agreement-based Operation (“Contract Operations”)

 

RKAB Validity Period

Regulation 10/2023 no longer features the same drafting period for the above-described RKAB as previously set under Regulation 7/2020, which mandated annual drafting. RKAB have now been classified into two specific RKAB types along with their respective validity period, as detailed below:

RKAB Type

Validity Period

RKAB for the exploration phase

One year

RKAB for the production- operation phase

Regular

Three years

Mining Permit Validity Periods of less than three years

Should be adjusted in line with Mining Permit validity periods

For comparison, the above-described RKAB classifications and validity periods were not featured under the previous framework of Regulation 7/2020.

Both Regulation 7/2020 and Regulation 10/2023 provide a provision for Mining Permit holders to request amendments to their approved RKAB. Requests for amendments can be submitted once per ongoing year, following the submission of the relevant third quarterly report and no later than 31 July of that year. However, under specific circumstances, requests for RKAB amendments may be submitted more than once within the ongoing year. It is important to note that the conditions governing such multiple submissions, as was originally outlined in Regulation 7/2020, have been amended under Regulation 10/2023, as follows:

Conditions for Amendments Regulation 7/2020 Regulation 10/2023
Force-majeure events
Other disrupting circumstances
Environmental conditions unable to withstand the burden of operation production
Changes in the government’s policies that relate to the coal-mineral production rate
Failure to fulfil the national coal-mineral production target
Failure to fulfil domestic coal-mineral requirements

 

  1. Obligation to Deposit 30% of Export Value

On 1 August 2023, the government issued Government Regulation No.36 of 2023 on Export Earnings (Devisa Hasil Ekspor – “DHE”) from Business, Management and/or Processing Activities Relating to Natural Resources (“Regulation 36/2023”). As a new legal framework for the management of DHE from the natural resources sector, Regulation 36/2023 impacts exporters whose incomes derive from exported goods in the natural resources sector. Parties that are impacted by Regulation 36/2023 consist of exporters of mining, farming, forestry, and fisheries.

Deposits of DHE from exported natural resources shall be placed by exporters according to their export values:

Export Value

Placement of DHE

Minimum of USD250,000

Obligated to deposit  DHE SDA into a special DHE SDA account at Indonesia Eximbank or Lembaga Pembiayaan Ekspor Indonesia (“LPEI”) export funding agencies and/or banks that provide foreign currency exchange services.

Less than USD250,000

May voluntarily deposit their DHE into a special DHE SDA account.

Exporters of natural resource exports with a value of at least US$250,000 (equivalent to Rp3.75 billion) must place at least 30% (thirty percent) of the export value in a special DHE SDA account within three months of the date of export duty registration. The DHE must remain in the account for a minimum of three months. DHE deposited in the special account may be utilized by exporters depositing the DHE for the following purposes:

    • To pay export duties and other levies in the export sector;
    • To provide loans;
    • To pay for imported goods;
    • To pay profits/dividends;
    • To meet/pay other investment needs.

It is to be noted that Regulation 36/2023 is silent on the maximum amount of DHE that must be placed in the special account. Therefore, exporters may open more than one special account at the same LPEI and/or or banks that provide foreign currency exchange services  (including at different banks).

mining tax
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Tax and Non-tax Facilities

To encourage high compliance, the government offers tax and non-tax benefits to businesses that comply with DHE SDA deposit obligation. In accordance with Article 10 of PP No. 36/2023, exporters, Foreign Exchange Banks, and LPEI complying with DHE SDA placement obligations may be eligible for tax incentives defined by relevant tax regulations. Additionally, Article 10 specifies that such compliant exporters may be recognized as “reputable” under relevant trade regulations.

Further, Article 10 of GR 36/2023 also grants power to ministries, institutions, and/or authorities to implement incentives for Foreign Exchange Banks, LPEI and exporters depositing their DHE SDA in banking instruments, financial instruments issued by LPEI (promissory note issued by LPEI) and/or other instruments issued by Bank Indonesia.

Applicable Sanctions

In accordance with Regulation 36/2023, the Financial Services Authority (Otoritas Jasa Keuangan – “OJK”) and Bank Indonesia will oversee and monitor the fulfilment of specific exporter obligations as outlined in Regulation 36/2023. Non-compliance with Regulation 36/2023 may result in administrative sanctions by customs authorities, the imposition of which is based on information gathered through monitoring by OJK and Bank Indonesia. These administrative sanctions may take the form of temporary suspension of export services or facilities.

WIUP WIUPK
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  1. New Procedures for Securing WIUP and WIUPK for Metal and Non-Metal Mineral

The Minister has issued Decree No. 258.K/MB.01/MEM.B/2023 (“Decree 258/2023”), which contains guidelines for the designation of Mining Business License Areas (Wilayah Izin Usaha PertambanganWIUP) and Special Mining Business License Areas (Wilayah Izin Usaha Pertambangan KhususWIUPK) for metal and coal mining activities.

Decree 258/2023 primarily sets out various technical adjustments to the following provisions:

    1. general adjustment; and
    2. procedures for securing WIUPK by priority.

General Adjustment

In accordance with Decree 258/2023, State-Owned Enterprises (BUMN) and Regionally Owned Enterprises (BUMD) have the option to secure WIUP and WIUPK through a priority list. Alternatively, an auction mechanism is also available for BUMN and BUMD to obtain WIUP and WIUPK. The table below summarizes the types of mining business actors eligible to participate in the auction for WIUP or WIUPK, along with the applicable sizes of the corresponding mining areas:

Types of Business Actors

Size of Mining Area

≤500 Ha

>500 Ha

BUMN

BUMD

Local BUMD

National private entities (micro-and small-scale enterprises)

National private entities (medium and large-scale enterprises)

Private entities for purposes of foreign investment

Cooperatives

Individual Companies

Contrary to Law 3/2020, which stipulates that IUP holders may be granted more than one IUP for stone commodities, Decree 258/2023 provides an exception that business entities, cooperatives or individual companies that do not have any IUP can be granted more than one IUP for non-metal mineral and stone commodities.

wiupk
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Procedures for Securing WIUPK by Priority

A significant modificationi introduced by Decree 258/2023 pertains to the coordination process between BUMN and BUMD. This coordination may lead to the following recommendations concerning BUMN and/or BUMD:

    1. recommendation for the establishment of a new joint-venture business entity within 90 calendar days from the signing of the relevant Minutes of the WIUPK Offer.
    2. recommendation for the use of other business entities of which the capital is owned by the relevant BUMN or BUMD within 60 calendar days from the signing of the Minutes of the WIUPK Offer.

It is important to note that if only one BUMN or BUMD expresses interest in obtaining a WIUPK, the priority WIUPK issuance will not be applicable. Instead, the selection of the relevant BUMN or BUMD will be determined through compliance with mandatory information data payments. In cases where BUMN or BUMD that have participated in the process of securing WIUPK by priority fail to reach an agreement at the coordination stage, the procedure for securing the relevant WIUPK will shift to the auction mechanism

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