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Relaxation Royalty 0% for Coal Commodities

In order to increase investment and job creation in the energy and mineral resources sector, the Government of the Republic of Indonesia just enacted Government Regulation Number 25 of 2021 regarding the Implementation of the Energy and Mineral Resources Sector (“GR 25/2021”) on February 2, 2021, as a form of the implementing regulation for Article 39, Article 41, Article 42, and Article 185 letter b related to the energy and mineral resources sector Government Regulations in Law Number 11 of 2020 regarding Job Creation (“Job Creation Law”). The following are the main points that are regulated in GR 25/2021:

 

MINERAL AND COAL SECTOR

 1. Royalty 0% (zero percent) for Coal Commodities.

The Government has provided 0% royalty incentive for IUP OP, IUPK or IUPK (as an extension of CCoW) companies carrying out Coal Value-Added activities (improving coal quality with or without changing the physical or chemical properties of the original coal or of the gasification scheme). While details of the requirements and procedures of the incentive will be further Government Regulations by the Ministry of Finance, but the scheme will expectedly boost the long-awaited coal upgrading activities in Indonesia.

The 0% royalty incentive might not be the only incentive for the coal upgrading as the Government is also preparing other types of incentives to be introduced in the upcoming implementing sectoral Government Regulations for coal upgrading business (eg. tax holiday, VAT exemption for coal processing services, VAT exemption for EPC works for the upgrading facilities).

 

GEOTHERMAL

1. Direct Assignment for State-Owned Company

Instead of participating in the mandatory tender process, the Government may direct, assign or appoint state-owned enterprises (SOEs) to do exploration, exploitation, and/or utilization of geothermal work area subject to certain conditions, and the assignment or appointment itself is deemed as Geothermal Business License (“IPB“). The provision is actually not a new feature in the geothermal industrial landscape in Indonesia, but indeed the market will expect that geothermal exploration activities will be increased significantly if the Government consistently mandates the SOEs to do so.

2. The Utilization of Produced Electricity.

IPB holders may utilize the electricity generated or produced from the work area by:

  1. Selling the electricity to other business entities or the public;
  2. cooperating with the holder of an integrated electricity supply business license; and/or
  3. using the electricity for his own needs or selling the excess electricity.

3. The Restriction for IPB Holders in Transferring Their IPB and Shares

Under Articles 14 and 15 of GR 25/2021, the Government seems to restrict the transfer of license and shares in IPB companies by imposing a significant monetary penalty of Rp. 100.000.000.000 (one hundred billion).

The following are the restricted transfer of license and share for geothermal IPB licenses holders:

  1. transfer of IPB to other business entity; or
  2. transfer of shares in the Indonesian Stock Exchange prior to exploration activities and without consent from the Government.

However, GR 25/2021 is not entirely clear as to whether the transfer of licenses and shares remains valid if the company pays the penalty to the Government, or whether the penalty is still imposable if the shares in IPB holder are privately transferred (not through stock market).

4. Sanction and Penalty for IPB Holders

The penalty impositions in the geothermal sector Government Regulations for IPB holders:

  1. Business entities holding IPB for Indirect Use that do not use a license in accordance with its designation businesses are subject to a penalty of IDR 50,000,000,000.00 (fifty billion rupiah);
  2. IPB holders who do not carry out reclamation and environmental function conservation activities are subject to a penalty of IDR 50,000,000,000.00 (fifty billion rupiah);
  3. If the IPB has expired and the IPB holders does not;
    • pay off and settle all financial obligations;
    • return the entire work area and matters relating to the return of the work area;
    • submit all geothermal data and information in the work area, both in analog and digital form; or
    • perform obligations after the IPB ends;

the IPB holders are subject to a penalty of IDR 7,000,000,000.00 (seven billion rupiah); and

d. IPB holders who do not carry out the IPB obligations in the form of submitting all geothermal data and information obtained from the results of exploration and exploitation are subject to a penalty of IDR 7,000,000,000.00 (seven billion rupiah).

 

ELECTRICITY

 1. Shifting the Licensing / Approval Authority to the Central Government

One of the major changes brought by Job Creation Law is that the Central Government takes over almost all of the authorities that were previously divided between the central and regional governments. Some of them are the determination of:

  1. business licensing related to cross-border power purchase and sale;
  2. electricity tariffs for consumers;
  3. approval for the sale price of electricity and the lease of electricity networks; and
  4. approval for the sale of excess electricity.

2. IUPTL Holders Privileges

Further, the license holders of electricity supply business activities for the public interest (“IUPTL”) has the right to:

  1. cross rivers or lakes, either above or below the surface;
  2. cross the sea, both above and below the surface;
  3. cross public roads and railways;
  4. enter a public or private place and use it temporarily;
  5. use the ground and cross over or under the ground;
  6. cross over or under a building built on or under the ground; and
  7. cut and/or cut down plants that get in the way.

In addition to the rights referred to above, the IUPTL holders have the right to traverse the gas pipeline and infrastructure as well as the forest area to maintain the reliability of the electricity supply.

3. Land Acquisition

Related to the land acquisition for the use of electricity supply business activities, the IUPTL holders must compensate the land, buildings and plants of the right holders with the amount of compensation based on the calculation formula for compensation multiplied by the price of land, buildings and plants,  which is to be determined by an independent appraisal agency appointed by the Minister.

Such compensation is only applicable for an indirect use of land which results in the reduction of the economic value of land, buildings and plants traversed by the electric power transmission network.

4. Supporting Services in Electricity

Electricity support services in the form of foreign representative offices are only permitted to work on high-cost electricity support services, such as:

  1. Construction work and installation of electric power installations with a value of at least IDR 100,000,000,000.00 (one hundred billion rupiah); and
  2. Consultation work in the field of electric power installations with a value of at least IDR 10,000,000,000.00 (ten billion rupiah).

 

CONCLUSION

The miscellaneous provision in GR 25/2021 stipulates that the Minister has a discretion to decide certain policies to solve the actual problems in the administration of government affairs in the field of energy and mineral resources in case 1). GR 25/2021 provides the choice of not regulating, 2). there is incomplete or unclear, and/or 3). there is government stagnation.

Further, for the Indonesian coal miners, aside from GR 25/2021, they should monitor developments of the implementing Government Regulations of the new mining law (Law 3/2020) which will expectedly be issued in the upcoming months.

 

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Dendi Adisuryo
[email protected]

Praniti Putri Mirza

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This publication has been prepared for general informational purposes only to provide clients with information on recent legal developments and is not intended as legal advice or opinion.