The last three years saw a significant increase in export of mineral ores from Indonesia following the enactment of the Mining Law (Law 4/2009) in 2009. The Ministry of Energy and Mineral Resources (“ESDM”) reported that exports of nickel ore increased by 800%, iron ore by 700%, and bauxite by 500%. This occurred despite the Mining Law mandating that miners must process and refine the ore within the country. This mandatory requirement has to be implemented no later than 12 January 2014. Nevertheless, as yet no comprehensive plan has been properly devised by mining companies to build domestic refinery facilities.
It was against this backdrop that the Government of Indonesia recently issued a series of regulations that were intended to accelerate the implementation by mining companies of their processing and refining obligations. These regulations are as follows:
- ESDM Minister Regulation No. 7 of 2012 dated 6 February 2012, as recently amended by Regulation No. 11 of 2012 dated 16 May 2012. To implement these ministerial regulations, the Director General of Mineral and Coal Mines has issued Regulation No. 574.K/30/ DJB/2012 dated 11 May 2012 (together with the referenced ministerial regulations, “ESDM Regulations”)
- Minister of Trade Regulation No. 29/M-DAG/PER/5/2012 dated 7 May 2012 (“MoT Regulation”);
- Minister of Finance Regulation No. 75/PMK.011/2012 dated 16 May 2012 (“MoF Regulation”).
Generally, with effect from 6 May 2012, mining companies are prohibited from exporting mineral ores. An exception to the rule is the mining companies have secured a recommendation letter from the Director General of Mineral and Coal Mines. The recommendation letter will specify the types, quantity, price of the ores to be exported, as well as the destination country.
To secure the recommendation letter, mining companies must comply with the following requirements:
Produce a valid mining business license;
Settle all financial obligations owed to the State;
Submit a working and/or cooperation plan for the processing and refining activities in the country; and
Sign an integrity pact confirming their commitment to procure the processing and refining facilities by 12 January 2014.
The MoT Regulation maintains the notion that the export of mineral ores is something that needs to be controlled to ensure ample supply of mineral ores in the country. One way to achieve this is to regulate the export mechanism whereby any export of mineral ores can only be done by a mining company that has been registered with and obtained an export approval from the Minister of Trade. To be registered with and to have obtained an export approval from the Minister of Trade, mining companies must first secure a recommendation letter from the Director General of Mineral and Coal Mines as described above.
Furthermore, the MoT Regulation stipulates that any mineral ore exported will be subject to verification by a certified surveyor. Results of the verification will be documented in a surveyor’s report detailing the qualitative analysis of the composition and content of mineral that is contained in the ores to be exported. The exporter is responsible for any costs associated with the verification process. In the past, verification was not necessary; leading to a mismatch of export data between Indonesia and the destination country.
The MoT Regulation also imposes reporting obligations on the exporter in relation to its export activities. The report has to be submitted to the Director General of Foreign Trade no later than the 15th day of each month, with a copy to the Director General of Mineral and Coal Mines. Failure to submit the report will lead to the exporter being derecognized as a qualified exporter by the Minister of Trade. This sanction may also be imposed if an exporter exports its mineral ores with the types and/ or in the quantity not in accord with the approved export documentation.
To discourage mining companies from exporting mineral ores, the Minister of Finance has imposed export duty on mineral ores.
According to the MoF Regulation, the applicable export duty for mineral ores is 20% of the export benchmark price which will be determined on a regular basis.
While export of mineral ores is only absolutely prohibited after January 2014, the Government of Indonesia has started to implement measures to control export. Mining companies are still allowed to export mineral ores, but controls have been tightened with ample fiscal and other disincentives. It should be understood that the governmental measures discussed in this article are merely transitional prior to an upcoming complete ban in 2014.