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Jakarta Post

Omnibus bill to centralize permit processing, offer incentives for miners

  • Norman Harsono

    The Jakarta Post

Jakarta   /   Wed, February 19, 2020   /   10:45 am
Omnibus bill to centralize permit processing, offer incentives for miners The atmosphere of operational activities at the Tutupan coal mine, Thursday, March 24, 2011. The Tutupan coal mine is one of the mining blocks owned by PT. Adaro Indonesia in Balangan district, South Kalimantan province. (JP/R. Berto Wedhatama)

An upcoming landmark bill on job creation is expected to streamline business and boost investment for miners in Indonesia, albeit at the expense of environmental protection and regional autonomy.

The bill, a draft of which was obtained by The Jakarta Post, will introduce four major changes to the 2009 Coal and Mineral Mining Law. These changes aim to centralize the issuance of mining permits, provide legal certainty for mining giants, boost downstream industry development and expand the nation’s mining territory into the open seas.

The changes are very similar to those being separately worked on by the House of Representatives. 

Read also: Growth first, environment later. Proposed legal revision relaxes mining restrictions

“What’s being discussed in the job creation bill is investment certainty, including how to boost downstream industry development,” Energy and Mineral Resources Ministry coal and mineral director general Bambang Gatot Ariyono told reporters in Jakarta last week.

Indonesia wants to earn more money from its mineral wealth by having miners develop downstream industries, such as mineral smelters and coal-fired power plants. The government will enforce bans on exports of all metal ore by 2022 and coal by 2046 while at the same time promoting development by relaxing regulations and offering incentives.

Downstream industry development

The sweeping omnibus bill will introduce several fiscal incentives to boost the development of downstream mining industries including mineral smelters, coal-fired power plants and coal gasification facilities. 

It will allow miners that invest downstream to operate their respective concessions until reserves run dry (Article 47). Otherwise, operational periods will be capped at 40 years maximum.

The bill also exempts coal miners that invest downstream from paying royalties and from complying with Indonesia’s domestic market obligation (Article 28A) policy. Prevailing regulations require such miners to pay up to 7 percent of their net profit as royalty and sell 25 percent of their product domestically at US$70 per ton. 

Most of the price-capped coal goes to Indonesia’s largest power producer, state-owned electricity company PLN.

United Overseas Bank (UOB) economist Enrico Tanuwidjaya wrote in a note last year that the government’s downstream plan “will be substantial in the long-term” but only with “consistent legal and policy certainties” and “sustained and immediate development of the processing and downstream industries.”

Read also: Ban on unrefined nickel exports positive in long run: Economist

Environmental watchdog Mining Advocacy Network’s (Jatam) Merah Johansyah slammed the incentives, arguing that they would prolong environmental destruction.

Contrary to Jatam’s argument, Indonesian Nickel Mining Association (APNI) secretary-general Meidy Katrin told the Post on Jan. 30 that “not many miners” had the financial muscle to exploit concessions beyond 40 years.

Legal certainty for mining giants

The government will provide some long-awaited certainty for coal miners and mineral miners, whose contracts are based on the now-defunct 1967 Mining Law. 

Article 169A of the bill allows such miners to resume operating their respective concessions as special mining permit (IUPK) holders instead of contract of work holders, whereby “IUPKs have to pay higher royalty fees”, Indonesian Mining Institute (IMI) chairman Irwandy Arif told the Post on Feb. 17.

Indonesian Coal Mining Association (APBI) executive director Hendra Sinadia previously described the legal certainty issue as “very urgent” because seven coal mining giants’ contracts are slated to expire between 2020 and 2025, the earliest of which expires in November this year. 

The soon-to-expire contract belongs to Jakarta-based PT Arutmin Indonesia, a subsidiary of the country’s largest coal miner by output, PT Bumi Resources.

Nickel mining activities at Sorowako PT Vale Indonesia Tbk. After being transported to trucks, nickel material in the form of land is placed in a temporary shelter, then put into a factory to be processed until it gets a matte nickel of 78 percent, and is exported to Japan. Nickel mining activities at Sorowako PT Vale Indonesia Tbk. After being transported to trucks, nickel material in the form of land is placed in a temporary shelter, then put into a factory to be processed until it gets a matte nickel of 78 percent, and is exported to Japan. (JP/Ruslan Sangadji)

Centralizing mining permits

The omnibus bill aims to streamline the issuance of mining permits by centralizing the process with the government. At the moment, regional leaders have the power to issue mining permits and create regional mining regulations, many of which contradict national-level regulations.

The government will scrap Mining Law articles 48 and 67 if the omnibus bill passes into law. Article 48 allows regional leaders to issue mining permits while Article 67 authorizes regents and mayors to issue cooperative mining permits.

Watchdog leaders Robert Endi Jaweng and Maryati Abdullah, who respectively head think tanks Regional Autonomy Watch (KPPOD) and Publish What You Pay (PWYP) Indonesia, described the changes as a “recentralization” scheme that harks back to the country’s authoritarian New Order era.

“From an autonomy standpoint, it’s drying up the spirit of regional autonomy. It’s going in the opposite direction,” Robert said, referring to the 2004 Regional Autonomy Law, which guarantees certain powers for regional administrations.

Read also: Omnibus bill allows President to scrap bylaws, weakens regional administrations

“The issue is not just opening the investment tap,” said Maryati. “Will local residents have a complaint-handling mechanism?”

Law lecturer Ahmad Redi, who leads the drafting of the bill’s energy-related provisions, countered the argument, saying that, in the long run, downstream industry development “will increase the products’ values, which will add to state and regional incomes”.

Expanding mining territory further offshore

The omnibus bill will allow mining activities anywhere within Indonesian seas (Article 47A) whereas the existing Mining Law limits offshore activity to 12 kilometers beyond the coast (Article 6).

The relaxation was needed to extract offshore tin reserves as “we are almost out of tin reserves onshore, so like it or not, we have to enter the sea,” IMI’s Irwandy told the Post.

Indonesia is the world’s second-largest tin producer after China. A quarter of the global supply of tin, used for a range of products, from electronics to eyeglasses, comes from Indonesia, according to the US Geological Survey.