The announcement of a ban on export of unprocessed metals and non-metallic minerals in the Minister of Energy and Mineral Resources ("MEMR") Regulation No. 7 of 2012 regarding the Improvement of Mineral Added Values Through Mineral Processing and Refining ("Regulation 7"), as discussed in our March 2012 e-bulletin, created a significant degree of uncertainty as to the timing of implementation of the proposed export ban. The export ban on certain unprocessed metals and non-metallic minerals appeared to come into force on 6 May 2012, although under the transitional provisions in Regulation 7, certain mining companies will have a longer period of time to bring their level of mineral processing into line with the levels required by Regulation 7. The MEMR together with the Minister of Trade ("MOT") and Minister of Finance ("MOF") have recently clarified the position on exports of unprocessed minerals and ores by stating  that such exports will in fact be permitted, subject to satisfaction of various pre-requisites (as stipulated in MOT Regulation No. 29/M-DAG/PER/5/2012 dated 7 May 2012 ("Regulation 29/2012")) and payment of an additional export tax (as stipulated in MOF Regulation No.75/PMK/.011/2012 dated 16 May 2012 ("Regulation 75/2012")). The new rules are very bureaucratic. Failure to comply with the new requirements will mean that mining companies operating under IUP mining licences will no longer be able to export the relevant types of unprocessed minerals.

Application of new export rules

Regulation 29/2012 and Regulation 75/2012 have expanded the types of minerals and ores that are within the scope of the new export rules from those that were originally stipulated in Regulation 7 to now 65 types of minerals and ores, which include unprocessed iron ore, manganese ore, copper ore, nickel ore, gold ore and silver ore. For a full list of minerals to which the new export policy applies, please click here.

Importantly, the new export policy does not yet apply to coal, although the government has indicated that it is considering introducing restrictions on coal exports, in particular low calorific coal types.

Conditions for obtaining approval to export unprocessed minerals and ores – Regulation 29/2012

Pursuant to Articles 3(1) and 4(1) of Regulation 29/2012 unprocessed minerals and ores may only be exported by a company that:

  1. has been registered as a Registered Mining Products Exporter by the Ministry of Finance through Director General of Foreign Trade ("DGFT"); and
  2. has received a Mining Products Export Approval from the Ministry of Finance through DGFT.

Registration as a Registered Mining Products Exporter

In order to be approved as Registered Mining Products Exporter, companies are required to submit the following documents to the DGFT:

  1. mining concession (in the form of a mining licence (IUP) or Contract of Work;
  2. Company Registration Certificate;
  3. Taxpayer Registration Number; and
  4. recommendation from the Director General of Minerals and Coal ("DGMC").

DGFT is required to issue acknowledgement of registration of the company as a Registered Mining Products Exporter within five (5) business days of receipt of all the required documents. The registration itself will be valid for two (2) years from the date of issue.   Application for Mining Products Export Approval

In order to obtain the required Mining Products Export Approval, a company must submit the following documents to DGFT:

  1. mining concession (in the form of a mining licence (IUP) or Contract of Work);
  2. Company Registration Certificate;
  3. Taxpayer Registration Number; and
  4. recommendation from DGMC, setting out the  type of minerals to be exported by the company, total export quotas, duration of export activities, port of loading and country of destination.

DGFT must issue Mining Products Export Approval within five (5) business days of receipt of the documents.

Recommendations from DGMC

The requirements for obtaining a recommendation from DGMC for an IUP company to register as Registered Mining Products Exporter or obtaining the Mining Products Export Approval have now been set out in the new Regulation of DGMC No.574.K/30/DJB/2012 dated 11 May 2012 (“Regulation 574/2012”).

The recommendation from DGMC under Regulation 574/2012 is only granted by DGMC to IUP companies. There is no clarity in Regulation 574/2012 as to the procedure for a Contract of Work company to obtain a recommendation or if that is required.

In general, the following documents must be submitted to DGMC for an IUP company to obtain a recommendation for the purpose of obtaining: (i)  acknowledgement as Registered Mining Products Exporter; and (ii) Mining Products Export Approval:

Registered Mining Products Exporter

  1. certificate of Clean and Clear IUP from MEMR;
  2. "Integrity Pact" (signed with the Government) which among others provides that the mining company will increase value adding by constructing its own processing/refining facilities or by way of cooperation;
  3. memorandum of understanding with other IUP company if the relevant company will cooperate with another IUP company for processing and refining facilities;
  4. work plan to construct the processing and refining facilities;
  5. mining products sales contract with an end user;
  6. Taxpayer Registration Number; and
  7. Company Registration Certificate.

Mining Products Export Approval

  1. Registered Mining Products Exporter approval;
  2. export plan;
  3. data on resource, reserves and production;
  4. mining products sales contract with end user;
  5. evidence of deposit of reclamation guarantee;
  6. evidence of payment of deadrent for the latest year; and
  7. evidence of payment of royalties for the latest year.

Other requirements

In addition to the above requirements, every shipment of unprocessed minerals or ore must be verified by an independent surveyor appointed by the MOF through DGFT prior to loading of the products for shipment. The surveyor's findings will be set out in a report, which must be submitted together with the relevant Mining Products Export Approval for registration of Export Goods Declaration.

Companies are required to submit monthly written reports on their export activities to the Director General of Industrial and Mining Products Export and DGMC.   Sanctions

Non-compliance with the above rules may result in the mining company losing its ability to export. The company's registration as a Registered Mining Products Exporter may be revoked:

  1. for failure to submit a monthly report on three occasions;
  2. due to any changes, additions or replacement to any terms of the application document as submitted for registration as a Registered Mining Products Exporter or Mining Products Export Approval;
  3. exports of products that are not listed in, or the quantity of such exported product differs from, the submitted mining products export documents; and/or
  4. where the exporter is convicted of any criminal act in connection with abuse of the registration as Registered Mining Products Exporter or Mining Products Export Approval.

If the company's registration as Registered Mining Products Exporter has been revoked, it will not be able to reapply for re-registration for a period of one (1) year from the date of the revocation.

It is unclear whether all export prices for the relevant ores will be determined by the Director General or whether the export tax will be calculated by reference to the actual sales price payable for the exported products. However, since the government has not, to date, issued benchmark prices for any minerals other than coal, it is likely that the calculation will be based on the actual prices.

Export tax – Regulation 75/2012

Regulation 75/2012 imposes a new export tax on a variety of Indonesian commodities, including unprocessed minerals and ores. The export tax rate for unprocessed minerals and ores is 20%.

Regulation 75/2012 sets out two separate formulas for calculation of the total export tax payable, although it appears that only one formula is applicable to exports of unprocessed minerals and ores. The calculation is based on the "Export Price" (advalorum) set by the Director General of Customs and Excise ("DGCE") on behalf of the MOF and other relevant officials.

Importantly, where the exported product is a compound of several ores, the export tax will be calculated based on the Export Price of the highest-priced component.

Observations

The new export policy is a welcome departure from the outright ban on exports of unprocessed minerals and ores that was anticipated to come in on 6 May 2012. However, it is important to recognise that the government has signalled that the above are only interim transition measures until 2014 in the lead up to the introduction of the ban on export of unprocessed minerals (as originally anticipated under the Law No. 4 of 2009 on Mineral and Coal Mining), rather than an outright cancellation of the export ban. As such, companies will need to continue seriously exploring ways to comply with the processing obligations under Regulation 7 ahead of the 2014 deadline.

For companies holding IUP licences, the key for ensuring their ability to carry on exporting unprocessed minerals and ores will be the ability to have their licences included on the Clean and Clear list, given the large number of overlapping licences.

It remains unclear whether the Government will seek to apply the new export policy to mining companies operating under Contracts of Work given that the right to export products (whether in the form of processed or unprocessed minerals) is enshrined in Contracts of Work. The detailed implementation decrees seem to focus on IUP companies. The government has recognised that it is unable to impose export tax on companies operating under Coal Cooperation Contracts (which was cited as one of the reasons why the new export policy does not apply to coal). It is therefore possible that companies operating under Contracts of Work would be exempted from the export tax.