Indonesia Update: Incremental Regulatory Changes for the Mineral and Coal Mining Industry

The first half of 2018 has seen the Indonesian Government focused on the simplification and synchronization of regulations in the energy sector. Our previous e-bulletin on some of these regulatory reforms is available here.

Among the new regulations that have been issued, in May 2018, the Minister of Energy and Mineral Resources (“MEMR”) issued Regulation No. 25 of 2018 on Mineral and Coal Mining Businesses (“MEMR Regulation 25/2018”). MEMR Regulation 25/2018 introduces several notable regulatory requirements for companies operating in the Indonesian mining sector (including in the processing and refining industry). The broader context for the issuance of MEMR Regulation 25/2018 is the continued push by the Indonesian Government to require Indonesian mining companies to process and refine mineral ores in Indonesia.

The key changes introduced by MEMR Regulation 25/2018 are as follows:

• Ore exports: For several years, the Indonesian ore export ban has been implemented by only allowing products which achieve a certain mineral content or rock quantity to be exported outside of Indonesia (by obtaining the necessary export permits). MEMR Regulation 25/2018 updates the list of minimum mineral content and rock quantity applicable to such exports. New products on this list include nickel sulphide nickel and nickel sulphide hydrate with nickel content of 20% or higher and nickel oxide with nickel content of 65% or higher. Importantly, MEMR Regulation 25/2018 also clarifies that any mineral or rock products which are not expressly regulated by this list can only be exported after MEMR determines the minimum content of such products.
• Coal processing requirements: Since the implementation of the Indonesian ore export ban, there has been significant uncertainty as to what (if any) processing and refining obligations and minimum standards would apply to coal mining activities and coal exports. MEMR Regulation 25/2018 now clarifies that coal processing activities means activities in relation to: (i) coal upgrading; (ii) coal briquetting; (iii) coal coking; (iv) coal liquefaction; (v) coal gasification; and (vi) coal slurry/coal water mixing. However, to date, there remains no minimum coal calorific values (or other qualities) which apply to the export of coal from Indonesia.
• Non-state tax revenue for processing and refining activities: A fundamental and long-standing feature of the Indonesian mining regulatory regime is that exploration and operation production mining concession holders are obliged to pay several different forms of non-state tax revenue. MEMR Regulation 25/2018 now clarifies that the holders of processing and refining licenses will, in theory, also be subject to the same obligations to pay non-state tax revenue. To implement these provisions, MEMR has also issued MEMR Decree No. 1823 K/30/MEM/2018 (“MEMR Decree 1823/2018”) which specifically regulates the imposition, collection and payment/remittance of non-tax state revenues by processing and refining license holders. Under MEMR Decree 1823/2018, holders of processing and refining licenses are obliged to pay royalties attached to the relevant processed or refined metal or metal mineral, to the extent that the relevant mining concession holder has not paid such royalties.
• Increased regulatory reporting obligations: MEMR Regulation 25/2018 has formalized and specifically regulated the requirement for exploration license holders to: (i) prepare an exploration plan as set out in its Annual Work Plan and Budget (“WP&B”); (ii) prepare detailed exploration reports; (iii) carry out feasibility studies based on those exploration reports; and (iv) to submit feasibility study reports to MEMR through the Director General of Mineral and Coal for approval. Further, once a production operation license has been issued, the holder of such license is required to refer to the approved feasibility study report to implement the relevant construction activities (including in relation to the procurement and commissioning of mining equipment as well as the construction of relevant facilities/infrastructure). We understand that these regulatory changes may have been motivated by the Indonesian Government’s desire to increase accountability and transparency in relation to the development of Indonesian mines and, in particular, the construction of the corresponding processing and refining facilities.
• Transportation and sales activities: In 2017, the Indonesian Government removed the requirement to obtain a specific transportation and sales mining business license for Indonesian companies conducting mining transportation and sales activities. Our previous e-bulletin on this regulatory change is available here. However, earlier this year, the Indonesian Government re-introduced the availability of specific transportation and sales mining business licenses as a stand-alone business activity (separate from actual mining activities). Following this most recent regulatory change, MEMR Regulation 25/2018 expressly allows the holders of production operation licenses to co-operate with the holders of specific transportation and sales mining business licenses to load, transport, unload and/or sell the mining products of the production operation license holder.
• Community development and other regulatory changes: MEMR Regulation 25/2018 now obliges production operation license holders to increase the cost of their community development and empowerment programs if there is an increase in production capacity. However, there is no express ability to reduce the cost of these programs in the event of a decline in production capacity. Other notable changes introduced by MEMR Regulation 25/2018 include the introduction of increased accounting and financial standards for mining companies and revised boundary marker obligations for production operation license holders.