Mining

in Indonesia
Investment, Taxation and Regulatory Guide
January 2025, 14th Edition

[Link]/id
The guide
This guide is not intended to be a comprehensive study of all aspects of
the mining industry in Indonesia, but rather a general guide to certain key
considerations relating to investment and taxation in the sector. Readers
should note that the information included herein will require updating as
regulations change.

Companies intending to invest in Indonesia will need to carry out further

research and obtain updated information about the applicable investment
and operational requirements. They should also consider social, political,
and economic developments in Indonesia which could have a significant
impact on the success of any investment.

PwC Indonesia recommends that investors contact our specialist mining

team as they consider investment opportunities. Please see Appendix F for
the contact details of PwC Indonesia’s mining specialists.

Photo source: PT Sumbawa Timur Mining

Cover photo courtesy of: PwC

DISCLAIMER: This publication has been prepared for general guidance on matters of interest only,
and does not constitute professional advice. You should not act upon the information contained
in this publication without obtaining specific professional advice. No representation or warranty
(express or implied) is given as to the accuracy or completeness of the information contained in
this publication and, to the extent permitted by law, KAP Rintis, Jumadi, Rianto & Rekan, PwC
Tax Indonesia, PwC Legal Indonesia, PT Prima Wahana Caraka, PT PricewaterhouseCoopers
Indonesia Advisory, and PT PricewaterhouseCoopers Consulting Indonesia, its members,
employees, and agents do not accept or assume any liability, responsibility, or duty of care for any
consequences of you or anyone else acting, or refraining to act, in reliance upon the information
contained in this publication, or for any decisions based on it.

Regulatory information is current up to 31 December 2024.

Contents
Glossary 4
Foreword 8

1 The industry in perspective 10

2 Energy transition 24

3 Regulatory framework 32

4 Contracts of work 92

5 Tax regimes for the Indonesian

mining sector
102

6 Accounting considerations 128

Additional regulatory considerations for

7 mining investment 142

Appendices 152
About PwC | PwC Mining Contacts 174

Insertion - Indonesian Mining

Areas Map 183
Glossary

Term Definition

AMDAL Analisis Mengenai Dampak Lingkungan (Environmental

Impact Assessment)
BKPM Badan Koordinasi Penanaman Modal (Indonesia’s
Investment Coordinating Board)
BI Bank Indonesia
BIK Benefit-in-Kind
BUMN Badan Usaha Milik Negara (National state-owned
companies)
BUMD Badan Usaha Milik Daerah (Regional government-owned
companies)
CbCR Country-by-Country Reporting
CCA Coal Co-operation Agreement
CCoW Coal Contract of Work
CIF Cost, Insurance and Freight
CIT Corporate Income Tax
CoW Contract of Work
CSR Corporate Social Responsibility
DER Debt-to-Equity Ratio
DPR Dewan Perwakilan Rakyat (House of Representatives)
DGoFT Directorate General of Foreign Trade
DGoMC Directorate General of Minerals and Coal
DGT Directorate General of Taxation
DHE Devisa Hasil Ekspor (Mining Export Proceeds)
DHE SDA Devisa Hasil Ekspor dari Barang Ekspor Sumber Daya Alam
DMO Domestic Market Obligation
ESC Energy, Sustainability and Climate
ESG Environmental, Social and Governance
Energy Law Law No. 30/2007
Environmental Law Law No. 32/2009
E&E Exploration and Evaluation

4 PwC
 Term Definition

EU&R Energy, Utilities and Resources

FOB Free on Board
Forestry Law Law No. 41/1999, as amended by Law No. 19/2004
Government Government of Indonesia
GR 22/2010 Government Regulation [Reference Number]/[Issuance
Year]
GAR Gross as Received
GDP Gross Domestic Product
ha Hectare
HPB Harga Patokan Batubara (Coal Benchmark Price)
HPM Harga Patokan Mineral (Mineral Benchmark Price)
IDX Indonesia Stock Exchange
IFRS International Financial Reporting Standards
Investment Law Law No. 25/2007
IPO Initial Public Offering
IPR Izin Pertambangan Rakyat (Peoples’ Mining Licence)
ITL Law No. 36/2008 (the prevailing Income Tax Law)
IOT Internet of Things
IUJP Izin Usaha Jasa Pertambangan (Mining Services Business
Licence)
IUP Izin Usaha Pertambangan (Mining Business Licence)
IUPK Izin Usaha Pertambangan Khusus (Special Mining Business
Licence)
IUP-OP Izin Usaha Pertambangan Operasi Produksi (Operation
Production Mining Business Licence)
IUPK-OP Izin Usaha Pertambangan Khusus Operasi Produksi
(Operation Production Special Mining Business Licence)
KBLI Klasifikasi Baku Lapangan Usaha Indonesia (Indonesian
Formal Business Field Classification)
LPEI Lembaga Pembiayaan Ekspor Indonesia (Indonesian Export
Financing Agency)
LST Luxury Sales Tax

Mining in Indonesia: Investment, Taxation and Regulatory Guide 5

 Term Definition

Mining Law Law on Mineral and Coal Mining No. 4 of 2009, as

amended by Law No. 3/2020
MoEMR Ministry of Energy and Mineral Resources
MoF Ministry of Finance
MoT Ministry of Trade
MSME Ministry of Micro, Small and Medium Enterprises
mt Metric Tonne
NIB Nomor Induk Berusaha (Business Identification Number)
NPWP Nomor Pokok Wajib Pajak (Tax Payer Identification Number)
OJK Otoritas Jasa Keuangan (Financial Services Authority of
Indonesia)
OSS Online Single Submission
PBB Pajak Bumi dan Bangunan (Land and Building Tax)
PerMen 28/2009 MoEMR Regulation [Reference Number]/[Issuance Year]
PerMenDag 4/2015 Peraturan Menteri Perdagangan (MoT Regulation)
[Reference Number]/[Issuance Year]
Perpres Peraturan Presiden (Presidential Regulation)
PMA Penanaman Modal Asing (Foreign Investment)
PMDN Penanaman Modal Dalam Negeri (Domestic Investment)
PMK Peraturan Menteri Keuangan (MoF Regulation)
PNBP Penerimaan Negara Bukan Pajak (Non-Tax State Revenue)
PTBA PT Bukit Asam Tbk, the state-owned coal mining company
PwC PwC Indonesia, or the PwC global network of firms, as the
context requires
RKAB Rencana Kerja dan Anggaran Biaya (Work Plan and Budget)
SFAS Statement of Financial Accounting Standard
SIPB Surat Izin Penambangan Batuan (Rock Mining Business
Licence)
VAT Value Added Tax
WIUP Wilayah Izin Usaha Pertambangan (Mining Business
Licence Area)
WIUPK Wilayah Izin Usaha Pertambangan Khusus (Special Mining
Business Licence Area)
WHP Wilayah Hukum Pertambangan (Mining Jurisdiction Area)

6 PwC
 Term Definition

WHT Withholding Tax

WP Wilayah Pertambangan (Mining Area)
WPN Wilayah Pencadangan Negara (State Reserve Area)
WPR Wilayah Pertambangan Rakyat (Peoples’ Mining Area)
WUP Wilayah Usaha Pertambangan (Commercial Mining
Business Area)
WUPK Wilayah Usaha Pertambangan Khusus (Special Mining
Business Area)

Mining in Indonesia: Investment, Taxation and Regulatory Guide 7

Foreword

“
Welcome to the 14th edition of PwC Indonesia’s Mining in Indonesia: Investment,
Taxation and Regulatory Guide.

This edition of the guide updates readers on the latest tax, regulatory and commercial
changes since our previous edition. This publication has been written as a general
investment and taxation guide for all stakeholders interested in the mining sector in
Indonesia, including existing investors, potential investors, and others.

Over the past few years, Indonesia's mining industry has been significantly affected by
global and regional factors. Geopolitical flashpoints such as the Russia-Ukraine and Middle
East conflicts, with their resulting supply chain disruptions and commodity price volatility,
have created a challenging macroeconomic environment. Simultaneously, the global energy
transition is having far-reaching effects on the industry, not only in terms of fossil fuels such
as coal, but also in the form of increasing demand for critical minerals which are essential
to the transition to sustainable energy.

The Indonesian Government has also continued to issue new laws and regulations, which
have significantly impacted the mining sector, sometimes creating further uncertainty for
mining companies operating in the country. Notably, the Government's issuance of Law No.
3/2020 (the “Amendment to the Mining Law”) and Government Regulation No. 96 of 2021
(“GR 96/2021”), which was recently amended by GR 25/2024, have addressed some long-
standing concerns while also introducing new dynamics into the regulatory environment.
Additionally, the Job Creation Law, enacted through Government Regulation in Lieu of Law
No. 2 of 2022 and Law No. 6 of 2023, introduces further changes affecting all industries,
including mining.

More than a decade after the Mineral and Coal Mining Law No. 4 of 2009 (the “Mining
Law”) was promulgated, the Government issued Law No. 3/2020 (the “Amendment to the
Mining Law”) on 10 June 2020, after the House of Representatives (Dewan Perwakilan
Rakyat or “DPR”) approved the law on 12 May 2020. Investor reaction has generally been
positive, with the amendments demonstrating the Government’s desire to address some
long-standing industry concerns. These include addressing the regulatory certainty over
the issuance and extension of mining business licences, dealing with the continuation of
operations by Contract of Work (CoW) and Coal Contract of Work (CCoW) holders, dealing
with overlapping mining areas, improving coordination between the Central and Regional
Governments, promoting investment in exploration activities and dealing with illegal mining.

The issuance of the Amendment to the Mining Law was followed by the issuance of
Government Regulation No. 96 of 2021 (“GR 96/2021”) on the “Implementation of Mining
Business Activities”, which has also been generally well received by investors, since it
provides foreign investors with a longer period during which to satisfy share divestment

8 PwC
 Photo source: PwC

obligations. For instance, for operations which include underground mining with integrated
processing and/or refining facilities, foreign investors are now only required to commence
divestment from the 20th year of production. Previously, foreign shareholders had to
divest their interest in stages, commencing from the fifth year of production, resulting in a
shareholding of a maximum of 49% by the tenth year of production.

While there has been some progress in addressing long-standing industry issues, there
remains regulatory uncertainty that gives rise to investor concern. For example, the higher
royalty rate on the coal and mineral sales of mining companies in Indonesia under GR
15/2022 and GR 26/2022, payment obligations for coal mining companies who do not
meet the Domestic Market Obligation (DMO) requirement stipulated in Ministry of Energy
and Mineral Resources (MoEMR) Decree No. 267.K/MB.01/MEM.B/2022 (as amended by
Kepmen 399/2023), and the issuance of GR 36/2023 which introduces heavier requirements
for exporters of natural resources to deposit their export proceeds denominated in foreign
currencies (Devisa Hasil Ekspor dari Barang Ekspor Sumber Daya Alam or “DHE SDA”) in
the Indonesian financial system, have further increased investors’ perception that regulatory
risk in the Indonesian mining industry remains high.

However, as investors view Indonesia as still having significant geological potential,

particularly for critical minerals which are essential to the energy transition, there is a real
opportunity to attract greater investment to drive this sector’s contribution to the economy.
This is what all stakeholders should be focused on.

This publication aims to support investors as they navigate the Indonesian mining
investment climate, and to support the growth of the industry. Readers should note that
the regulatory content in this publication was current up to December 2024. Whilst every
effort has been made to ensure that all information was accurate at the time of printing,
many of the topics discussed are by their nature subject to interpretation, and regulations
are changing continuously. As such, this publication should only be viewed as a general
guidebook and not as a substitute for up-to-date professional advice. As such, we
recommend that you contact PwC’s mining specialists (see Appendix F) as you consider
investment opportunities in the Indonesian mining sector.

We hope that you find this publication interesting and useful, and we wish all readers
success with their endeavours in the Indonesian mining sector.

”
Mining in Indonesia: Investment, Taxation and Regulatory Guide 9
 The industry in
1 perspective
1.1 Coal and Mineral Prices
Since reaching record highs in 2022, the price surges that followed the
Russia-Ukraine conflict have since been largely wiped out. The rise of
the Middle East conflict, a slowing global economy, and shifting global
trends contributed to further declines in the average prices of coal and
most minerals in 2023. In the first half of 2024, average prices for coal,
nickel and iron continued to decrease, while those for copper, gold,
and tin increased.

Mineral and Coal Prices

Source: World Bank, PwC Analysis

Photo source: PT Agincourt Resources

10 PwC
 Photo source: PT Freeport Indonesia

Mining inMining
Indonesia:
in Indonesia:
Investment,
Investment,
TaxationTaxation
and Regulatory
and Regulatory11 11
Guide Guide
Coal – Contrary to many market watchers’ expectations, the average price of coal rose
year-on-year by 127% and 150% in 2021 and 2022, respectively. Increased demand for
thermal coal in Asia and Europe, limited supplies of natural gas, and sanctions on Russian
coal exports were some of the factors driving higher coal prices during these periods.
However, the coal price fell during the fourth quarter of 2022, followed by a sharp decline
in 2023. Compared to 2022, the average coal price during the first half of 2023 declined
by 42%, with the average coal price in June 2023 representing only one third of the record
high seen in September 2022. Several of the supply constraints that led to the sharp coal
price surge in 2022 have continued to unwind. In China and India (the world’s two largest
coal consumers), demand for coal is expected to be lower, as manufacturing producers
in both countries, especially steel plants, have completed stockpiling and are thus halting
their coal purchases. Supply wise, production by key coal producers such as China, India
and Indonesia also increased significantly. In the first semester of 2024, the coal prices
largely stabilised, despite still being subject to downward pressure due to the above
factors. Currently, consensus forecasts indicate that prices for thermal coal will follow a
downward trend over the next decade. With renewable energy becoming increasingly cost
competitive, and with net-zero targets set by many countries, more thermal-coal power
plants are set to be phased-out over the next decade.

Nickel – The average price of nickel increased by 40% in 2022 but decreased by 6% during
the first half of 2023. After reaching its peak in the first quarter of 2022, the nickel price
softened during the second and third quarters of 2022 as the price surges that followed the
Russia-Ukraine conflict largely unwound. The average price of nickel decreased by 15% in
2023 and continued to decrease by a further 19% in the first half of 2024. The weakening
nickel price was driven by an oversupply of nickel and weak demand from China. In the
short term, it is estimated that the increase in production from both Indonesia and China
will contribute to a higher supply, thus lower global nickel prices. However, in the long term,
nickel is projected to trend towards an undersupply, with demand for nickel for batteries
expected to outpace production.

Copper – The average copper price decreased by 5% in 2022, and by a further 3% in

2023. However, the first half of 2024 saw a reversal of this trend, with an increase in the
average price by 8%. This was aligned with expectations of a tightening of global supply,
which put pressure on the availability of refined copper. In the short term, the average
price of copper will likely be affected by a turnaround in demand from China’s construction
sector (a major consumer) and an increased supply from leading producers like Chile, Peru
and the Democratic Republic of Congo (contributing roughly 44% of global production). In
the long term, the green transition is likely to keep the copper markets in a deficit position,
as demand for “green” metals like copper, which is essential to electrification, continues to
rise. continues to rise. This undersupply trend is projected to continue for the next decade,
with demand outpacing production, increasing the likelihood of copper prices rising in the
long term.

Tin – After a price surge that reached its peak in April 2022, the average tin price has
softened, experiencing a 17% decline in 2023. However, a notable reversal began in
the second quarter of 2024, with the average price rising steadily. By June 2024, it had
increased by 30% compared to the same period in 2023. This surge is attributed to a surge
in Chinese demand that the supply chain has struggled to meet. Myanmar's tin mining ban,
implemented in August 2023, was also a significant contributor to supply-side constraints.
In the short term, tin prices are expected to continue rising, albeit modestly, due to the
ongoing Myanmar mining ban and a projected continuing increase in demand. The long-
term outlook remains positive, with tin prices likely to maintain a firm upward trend. This is
because it is estimated that future production growth will lag behind rising demand for tin

12 PwC
for electronics (particularly as electric vehicles (EVs) incorporate more electronics) and solar
panels (used in photovoltaic cells), solidifying tin's position as a crucial commodity for the
future.

Iron ore – The average price of iron ore increased steadily in the second half of 2023, and
in December reached its highest level since April 2022. This surge was mainly driven by iron
ore demand from China, fuelled by hopes of stimulus measures. However, this optimism
faded in the first quarter of 2024 due to weak demand from Chinese steelmakers. In the
short term, the continued weakness in the Chinese property sector is likely to cap iron ore
price growth and prices are likely to remain sensitive to any stimulus announcements from
the Chinese government. In the longer term, it is estimated that iron ore prices will follow a
multi-year downtrend due to a combination of factors: slowing Chinese demand growth, a
cooling in steel production growth, and higher iron ore output from global producers.

Gold – Gold's performance remained relatively stable throughout 2022 and 2023, with
prices showing minimal year-on-year fluctuations. However, June 2024 saw a significant
surge of 14% compared to December 2023. This increase can be attributed to several
factors: a weakening USD, interest rate cuts by the US Federal Reserve, ongoing
geopolitical uncertainty due to the Russia-Ukraine and Middle East conflicts, and
persistently high inflation. These factors have driven some investors to seek gold as a
safe haven asset. Looking to the long term, gold prices are expected to fall slightly. This is
primarily due to an anticipated change in risk sentiment as the global economy recovers in
the latter part of the decade.

1.2 Indonesian Production of Coal and Minerals

Coal – Indonesian coal production has shown steady growth over the last decade.
Indonesia consistently recorded coal production increases, except for the years 2014 -
2015 when coal production decreased due to a decline in coal prices and an effort by the
Government of Indonesia (the "Government”) to limit coal production increases, and in
2020 due to the decline in global and domestic demand for coal during the onset of the
COVID-19 pandemic, which led coal producers to cut production and reduce investment.
Despite the declining production, the 2020 coal production of 561 million tonnes was still
above the target of 550 million tonnes.

In 2021, coal production increased to 614 million tonnes, following a significant increase
in demand and prices. In 2022, the coal production target was set at 663 million tonnes.
Initially, Indonesian coal miners were expected to struggle to meet this target due to
interruptions to their production plans as a result of coal export restrictions imposed by the
Government in January 2022 to tackle the issue of inadequate domestic coal supply for
power stations. However, coal production reached 687 million tonnes in 2022, comfortably
surpassing the target, driven by strong global demand and the tightening of the coal market
in 2022 because of the sanctions on Russian coal exports.

In 2023, the Government set a coal production target of 695 million tonnes, with actual
production reaching a remarkable 771 million tonnes, exceeding the target by 11%. Much
of this growth in production was directed to export markets, driven by increased demand
from China and India. In 2024, the Government set a coal production target of only 710
million tonnes even though based on the data from the Indonesian coal miners work plans
and budgets (Rencana Kerja dan Anggaran Biaya or "RKAB"), Indonesian coal companies
planned for production of 922 million tonnes. As of 31 December 2024, total coal
production for the year has reportedly reached more than 830 million tonnes, a circa 7.5%
increase on 2023.
Mining in Indonesia: Investment, Taxation and Regulatory Guide 13
Non-coal minerals – In 2023, Indonesia was responsible for around four percent of global
gold production, of which half originated from the giant Grasberg mine, one of the world’s
largest copper and gold mines, located in the western half of Papua. As gold production in
Indonesia – by far – outpaces domestic gold demand, most of the production is shipped
abroad. However, the Government is currently seeking to stimulate the establishment of
national processing industries in order to increase domestic profits by exporting products
with greater added value.

Since 2013, tin production in Indonesia has significantly decreased as a result of the
Government’s efforts to limit export quotas to deal with illegal mining and the depletion
of reserves, and also due to the suspension of operations at several tin mines due to
environmental issues. In the 2016–2018 period, production levels remained steady, but at
less than half the level of tin production in 2013. Tin production showed some improvement
in 2019, with a 50% increase from 2018, but 2020 and 2021 saw a significant decline,
with production in 2021 only representing half of the 2019 production level. However, in
2022 tin production rose back to the 2020 levels, as tin miners increased their production
to capitalise on the strong tin price. In 2024, the growing production of clean energy
technologies supported increased demand for metals such as copper, tin and nickel. Tin
production rose by 66%, driven by the growing demand for semiconductors, photovoltaic
panels, and other energy transition technologies. Additionally, higher tin prices in 2024
compared to 2023 further incentivised increased production.

Copper production in Indonesia has been significantly shaped by production at the

Grasberg mine. This mine’s transition from open-pit to underground mining resulted in a
decrease in the copper production in Indonesia in 2019. The Grasberg underground mine
started ore extraction in 2020, reaching optimum production in mid-2020 and becoming
a major contributor to national copper production. In 2023, copper production decreased
by 11% primarily as a result of the government's weighing of a copper export ban. The full
operation of Freeport Indonesia's new smelter in Gresik, completed in 2024, will increase
the domestic copper processing capacity.

Photo source: PT Tuah Turangga Agung

14 PwC
The production of nickel and bauxite continued to increase after the relaxation of the ban
on exports of nickel ore and washed bauxite by the Government in 2017. Another factor
contributing to the increase has been production from new nickel smelters that have been
coming online since 2017, together with higher global nickel prices driven by increased
demand from the EV industry. The significant increase in the production of nickel in 2019
was primarily due to the Government’s decision to accelerate the full ban on exports of
low-grade nickel ore two years ahead of the initial schedule, which was announced in
August 2019 and became effective in January 2020. In 2020, nickel production fell due
to the pandemic, but then recovered strongly in 2021 and 2022, supported by increasing
demand and the waning impact of the pandemic. In 2023, nickel production increased by
14%, despite the decreased price of nickel in 2023 due to an oversupply of nickel ore from
the increase in the number of smelters and in the production of class 2 nickel in Indonesia.
The aggressive development of nickel smelters (RKEF and HPAL) over the past few years
has created a prolonged supply-demand surplus, leading to a significant drop in LME
Nickel prices. This expansion, which contributed to an overall increase in nickel production
by 26% in 2024, propelled refined nickel production up by 16% year-on-year in September
2024 to 1.1 million metric tonnes, compared to a global increase outside Indonesia of 4.9%
year-on-year.

Bauxite production decreased by 54% in 2023, due to a ban on exports of washed bauxite
imposed by the Government in June 2023. In 2024, the production further declined by 74%
compared to 2023, in response to the ban.

Historical Indonesian coal and mineral production trends are presented in the diagram
below (indexed to the base year 2010 = 100).

1200.00 1000000

900000
Index Numbers (base year 2010 = 100)

1000.00
800000

700000
800.00
600000

600.00 500000

400000
400.00
300000

200000
200.00
100000

0.00 0
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Coal Copper Gold Nickel Tin Mine Bauxite Nickel Ore

Source: Ministry of Energy, Mineral and Resources Performance Report (Laporan Kinerja Kementrian ESDM),
US Geological Survey, Minerba One Data Indonesia , PwC Analysis

Mining in Indonesia: Investment, Taxation and Regulatory Guide 15

Market Capitalisation of Mining Companies in Indonesia
The movements in the market capitalisation of listed coal and mineral mining companies on
the Indonesia Stock Exchange (IDX) have generally followed the fluctuations in mineral and
coal prices.

14,000 1,400
Total IDX market capitalisation (Trillion Rupiah)

12,000 1,200

10,000 1,000

8,000 800

6,000 600

4,000 400
Total Market Cap (in trillion Rupiah)

2,000 200

- -
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Q2 2024

Total Market Cap (in trillion) Coal mining stocks Minerals mining stocks

Source: IDX, PwC Analysis

During the period from December 2017 to December 2023, the market capitalisation of
listed coal and mineral mining companies on the IDX showed steady growth, in line with the
upward trend in mineral and coal prices over the period. The exception was 2019, where
the market capitalisation of listed coal and mineral mining companies on the IDX dropped
by 11% from IDR 370 trillion at 31 December 2018 to IDR 327 trillion at 31 December 2019.
Even at a time when many businesses were heavily impacted by the COVID-19 pandemic in
2020, the market capitalisation of mining stocks on the IDX still increased by 27% from IDR
327 trillion at 31 December 2019 to IDR 417 trillion at 31 December 2020.

From the period of December 2017 to December 2022, the market capitalisation of
listed coal mining companies on the IDX increased by 105%, from IDR 236 trillion at
31 December 2017 to IDR 484 trillion at 31 December 2022. This occurred despite
the pressures on coal as a result of the global transition to clean energy and rising
Environmental, Social and Governance (ESG) expectations from governments and other
stakeholders such as employees, local communities and customers. Geopolitical issues
experienced in 2022 have confirmed the continuing role played by coal in maintaining
energy security in many parts of the world, which has contributed to increases in both
demand for coal and the value of coal mining companies. The market capitalisation of listed
coal mining companies on the IDX further increased by 152% from IDR 484 trillion at 31
December 2022 to IDR 1,221 trillion at 31 December 2023. This increase was significantly
affected by the PT Bayan Resources Tbk stock split in December 2022 and the initial
public offering of PT Petrindo Jaya Kreasi Tbk in March 2023. The market capitalisation of
other listed coal mining companies on the IDX increased slightly by 5% at 31 December
2023 compared to 2022 following short term market sentiment arising from a recovery in
seasonal demand. Subsequently, the market capitalisation of listed coal mining companies
on the IDX decreased slightly by 4% to IDR 1,174 trillion as at 30 June 2024.

16 PwC
Over the same period, the market capitalisation of mineral mining companies listed on the
IDX increased by 981%, from IDR 74 trillion at 31 December 2017 to IDR 804 trillion at
31 December 2023. The strong performance of nickel, copper and gold prices in the last
few years and the important roles played by nickel and copper in the global transition to
clean energy have been major factors supporting the remarkable growth of mineral stocks
on the IDX in the last few years. It seems that the softening of mineral prices in 2024 has
not affected investors’ confidence, with many perceiving these green minerals (e.g. copper,
nickel, tin, etc.) as the commodities of the future with the market capitalisation of mineral
mining companies on the IDX increasing to IDR 1,115 trillion as of 30 June 2024.

1.3 The Mining Industry’s Contribution to the Indonesian Economy

Contribution of the Mining Industry to Indonesian Gross Domestic Product (“GDP”)

2,000,000 15.0%
1,800,000
13.0%
1,600,000
11.0%
1,400,000
9.2% 9.0%
1,200,000
IDR billion

6.3% 8.0%
1,000,000 7.0%
5.0% 5.0%
800,000 4.3% 4.7% 4.5% 6.6%
4.2% 4.3% 5.0%
600,000
3.0%
400,000

200,000 1.0%

0 -1.0%
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Q2
2024
Year

Min ing industry contribution to GDP Percentage of mining industry contribution to GDP

Source: Bank Indonesia, PwC Analysis

The mining sector has been one of the key sectors contributing to Indonesia’s economic
growth over many decades. The sector has made a significant contribution to Indonesian
GDP, exports, Government revenue, employment and, perhaps most importantly, to the
development of many remote regions of Indonesia. Mining companies are in some cases
the only significant employers in these remote areas.

The mining sector’s contribution to Indonesian GDP declined slightly from 4.5% in
2019 to 4.3% in 2020. As Indonesia’s coal and metal production and export quantities
mostly decreased in 2020, due to the weakening of global demand during the COVID-19
pandemic, the mining industry's contribution to GDP also decreased. However, mineral
and coal prices strengthened significantly in 2021 and 2022 following a strong recovery
in demand following the COVID-19 pandemic, with commodity prices bolstered further
by recent geopolitical tensions. As a result, the mining sector’s contribution to Indonesian
GDP improved significantly to 6.3% in 2021 and an impressive 9.2% in 2022, before falling
slightly to 8% in 2023, mainly due to a 14% decrease in export value due to the lower
coal price. In Q2 2024, the mining sector's contribution decreased further to 6.6%. Going
forward, the clean energy transition globally is likely to further dampen coal prices, lowering
coal’s contribution to Indonesian GDP. However, the contribution of minerals to GDP is
expected to increase and will partly offset the impact of the decrease in coal's contribution,
indicating that critical minerals are increasingly important to Indonesia’s economy.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 17

 Mining Products as a Percentage of Total Indonesian Exports

25% 25%
22%
20%
19%
20% 20%
16% 16%
14% 15%
million
USD million

15% 13% 13% 15%

13% 12%
US Dollar

10% 10%

5% 5%

0% 0%
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Q2 2024

Total contribution to capital

Total Contribution - Indonesian
to indonesian exports
exports Percentage of export from mining sector to total exports

Source: Bank Indonesia

The mining sector contributes an even more significant share of Indonesian exports,
particularly as mining products are generally priced in USD. After 2014, the mining sector’s
contribution to Indonesian exports fell off for a few years, following the implementation of
the ban on exports of unprocessed (or insufficiently processed) minerals in January 2014
and the introduction of a significant export duty on mineral concentrates. During the period
from 2014 to 2016, the mining industry’s contribution to Indonesia’s total export revenues
was consistent at around 13%, down from 17% in 2013.

However, the mining industry’s contribution to total exports increased to 14% and then
16% in 2017 and 2018, respectively, primarily due to increased coal export revenue,
increasing from USD 14.6 billion in 2016 to USD 20.5 billion in 2017 and to USD 24 billion in
2018 on the back of higher coal prices. The relaxation of the export ban on low-grade nickel
ores and washed bauxite, which took effect in 2017, also contributed to improvements
in the mining industry’s contribution to total exports, with nickel exports providing an
additional USD 155 million and USD 628 million in 2017 and 2018, respectively, while
bauxite exports posted a remarkable increase of USD 66 million and USD 265 million in
2017 and 2018, respectively, from just USD 430,000 in 2016.

In 2019, nickel and bauxite exports further increased to USD 1.1 billion and
USD 468 million, respectively. For nickel, the significant increase in exports was also
affected by the Government’s decision to accelerate a full ban on exports of low-grade
nickel ore two years ahead of the initial schedule. However, despite the improvement
contributed by nickel and bauxite exports, the mining industry’s contribution to total exports
decreased to 15% in 2019 as a result of lower coal exports, which decreased from
USD 24 billion in 2018 to USD 21.6 billion in 2019 due to the weakening of global coal
prices.

Since January 2020, the Government has officially banned exports of nickel ore. This policy
was designed to boost the development of smelter construction and also to preserve
the country’s reserves of key minerals, especially nickel. Coal export value and quantity
decreased by 24% and 11.3%, respectively, in 2020 due to the weakening of global
demand in light of the COVID-19 pandemic. As a result of these falls, the mining industry’s

18 PwC
contribution to total exports further decreased to 12% in 2020, despite bauxite exports
increasing to USD 555 million.

In 2021 and 2022, both mineral and coal prices strengthened significantly following a
strong demand recovery after the COVID-19 pandemic. As a result, the mining sector’s
contribution to total exports also significantly improved, to 16% in 2021 and then 22% in
2022. In 2023, the mining sector’s contribution to total exports decreased to 20% and then
to 19% in the first quarter of 2024 due to a lower export quantity and average price of coal.
For the remainder of 2024, it is estimated that the mining sector’s contribution will be similar
to that for 2023 (at around 19% - 20% of total exports).

1.4 Provisional Considerations for ESG in the Mining Sector

What is ESG?

Increased sustainability awareness is driving investors, customers, regulators, and thus

companies to pay proper attention and respond appropriately to ESG risks. Among the
most pervasive risks in the mining sector are: environmental practices, duty of care, climate
change1 and, in some cases, modern slavery.

ESG refers to the three main criteria used in measuring sustainability. Together, ESG
comprises a set of sustainability standards of importance to industries. In the business
environment, ESG is often adopted as a key metric when making investment decisions.
ESG also serves as a reference for companies when reporting the impacts of their business,
and has increasingly become a priority for companies’ strategic and operational agendas2.

In the mining industry, the ESG spectrum tracks a number of relevant activities: monitoring
energy releases, interactions with local communities, and disclosure3. The resulting ESG
plans serve as a lever to measure the costs and benefits of investments, and eventually as
a prime consideration for securing the social licenses needed to engage4.

The aim of this section is to provide a brief overview of the concept of ESG, as a way to
leverage sustainability into relevant business practices, including in the mining sector.

Disclaimer: This section provides a brief summary to create awareness and trigger actions.
Please refer to standard references, such as the Guide for Mineral Explorers on ESG5, to
guide actions.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 19

 Photo source: PT Bukit Asam Tbk

ESG Opportunities and Challenges

Opportunities rest in the improvement of decision-making processes which are based on

sustainable development assessment. In terms of corporate governance, for instance,
investors are driving a shift towards improved ESG management by their investee
companies. For energy companies with poor environmental records, investments may be
halted until management steps up energy switches and efficiencies, or governments may
respond through progressive legislation such as carbon taxes or cap-and-trade schemes6.

Companies can focus on minimising environmental impact while at the same time
enhancing energy efficiency. This can be achieved through:
• Support for collaboration with rural electrification initiatives (thereby allowing more
inclusive stakeholder participation);
• Taking part in R&D projects with a focus on environment or ecosystem restoration;
• Testing emissions trading systems or cutting-edge technologies; and
• Publicly endorsing carbon pricing mechanisms.

The use of renewable energy sources, such as through the installation of off-grid wind,
solar, or geothermal power systems can also support a more responsible and ecologically
sensitive era for coal mining7, eventually attracting more investors and bringing non-
economic benefits to the company in the long term8.

Ecosystem destruction due to mining also provides opportunities for rehabilitation and
restoration, which eventually provide a better delineation of ecosystem goods and services.
There are a few Indonesian success stories to draw lessons from9.

In terms of challenges, financial constraints and the related technical integration,

complexities are often at play which create practical constraints, such as in relation to
the adoption of technology. Furthermore, policy changes may result in overly stringent
regulations with which mining companies need to comply or prepare for in advance, such
as carbon pricing methods and more stringent emissions regulations.

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ESG Management Cycle

In practice, ESG encompasses a structured cycle of management steps, from planning, to

operationalising, measuring, and reporting.

Source: AMEC 2023

Sustainability Reporting as a Means to Integrate Sustainable Practices

ESG reporting acts as both a mirror reflecting current practices and a map guiding
companies towards more responsible and sustainable business models. The Otoritas Jasa
Keuangan (OJK), or Indonesian Financial Services Authority, regulation on Sustainable
Finance, POJK 51/2017 made sustainability reporting mandatory for all listed companies
in Indonesia indicating a strong political will on the part of the Indonesian government to
move in the direction of Sustainable Finance, which will ultimately drive the Sustainable
Development agenda in Indonesia. The OJK introduced additional criteria regarding
the required content of sustainability reports through SEOJK 16/2021, and is actively
monitoring the completeness of disclosure by scanning the sustainability reports submitted
by listed companies in Indonesia on an annual basis.

Research has consistently shown that the stock prices of companies with good
sustainability implementation outperform their peers. For instance, the NASDAQ OMX
CRD Global Sustainability Index, which includes companies with robust ESG practices,
outperformed the NASDAQ Composite Index at the height of the pandemic. Similarly,
the MSCI World ESG Leaders Index, which tracks companies with high ESG ratings,
has consistently outperformed the broader MSCI World Index. Over a five-year period,
the MSCI World ESG Leaders Index exhibited higher returns and lower volatility, further
illustrating the financial benefits of strong ESG implementation.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 21

ESG Reporting Frameworks vs. ESG Ratings

Sustainability reporting frameworks and ESG ratings play distinct but complementary roles
in ESG. This distinction, often overlooked, plays a pivotal role in shaping a company's
sustainability narrative and market perception. Understanding the difference between
sustainability reporting frameworks and ESG ratings is essential to any entity committed to
genuine sustainability.

Table 1.1 Characteristics of SR Frameworks and ESG ratings

SR frameworks ESG ratings

Measures How, What 'Effectiveness' and 'Impact,'

providing metrics that
investors can use to assess
a company's sustainability
maturity and commitment.
Functions Providing companies with Offering a comparative
a structured approach to analysis of a company’s ESG
disclose their sustainability performance against peers
efforts (in other words, (in other words, scoring
performance expectations). companies’ sustainability
efforts).
Standards POJK 51/2017 with SEOJK IDX, a member of the
16/2021 and the Global Sustainable Stock Exchange,
Reporting Initiative ("GRI"), or in collaboration with ESG
the International Council for ratings agencies, regularly
Mining and Metal ("ICMM"). provide performance
and risks of ESG Listed
Companies.

22 PwC
 Photo source: PT Freeport Indonesia

Frameworks and ratings are complementary in that a robust reporting framework is the
bedrock upon which credible ratings are built, while positive ratings can in turn reinforce a
company’s reputation, attract investors and drive further sustainability initiatives.

Understanding this distinction is imperative, as it can help companies not only document
their sustainability journeys, but also in understanding how these efforts are perceived and
valued by the outside world, helping them optimise their sustainability impacts for market
value and brand reputation.

Tackling the Pain Points. A common challenge faced by companies in implementing and
reporting their sustainability performance is the complexity of balancing the requirements
of various sustainability reporting frameworks, while also aiming to achieve favourable ESG
ratings.

This balancing act introduces significant pain points, particularly for Indonesian companies
navigating the intricate landscape of ESG metrics. Different frameworks and ratings
agencies emphasise different aspects of sustainability, placing companies in the difficult
position of having to meet a wide range of sometimes conflicting stakeholder expectations.
This can result in companies, both SMEs and larger corporations, striving to ensure that
their genuine sustainability efforts are accurately reflected in their ESG ratings.

Addressing this challenge requires a strategic and multifaceted approach. Companies can
begin by aligning their sustainability initiatives with national OJK regulations and globally
recognised sustainability standards, as well as any relevant sector standards, such as the
ICMM. This can help to ensure consistency and comparability across reports. Next, the
adoption of clear processes, roles, responsibility, and the use of technology for efficient
data management can significantly streamline the reporting process, accommodating the
varied criteria of different ESG frameworks more easily.

The people aspect of sustainability integration is also critical, particularly in building the
awareness and competence of people within organisations and companies who execute
and oversee sustainability integration and proactive engagement with key stakeholders—
ranging from investors and customers to ratings agencies—who can offer critical insights
and enable companies to refine their sustainability strategies effectively.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 23

 Energy transition
2
2.1 The need for an energy transition and the
associated challenges
Energy is a crucial input for all economic activity, and a secure and
affordable energy supply has been a key enabling factor for the global
economic growth that has lifted millions of people out of poverty.
Over the period from 1900 to 2023, global per capita Gross Domestic
Product (GDP) has increased from ca. USD 2,200 to ca. USD 13,13810.
Over the same period, global primary energy consumption increased
from ca. 12,000 TWh to ca. 172,119 TWh, with the proportion of fossil
fuels in the primary energy supply being ca. 81.5% in 202311. Research
indicates that six-fold growth in GDP per capita requires a fourteen-fold
increase in energy consumption, underlining the fact that economic
growth is correlated with energy consumption growth at a ratio of
around 1:2. About three-quarters of global greenhouse gas emissions
come from energy use, with around 74% being carbon dioxide (CO2)
and the remainder being gases like methane (CH4), nitrous oxide (N2O),
and F-gases. Climate science, coordinated by the Intergovernmental
Panel on Climate Change, is unequivocal in its conclusion that
anthropogenic GHG emissions are responsible for global warming and
climate change.

The Paris Agreement at the 21st Conference of the Parties (COP21)

calls for global warming to be kept well below 2°C above pre-
industrial levels, and for all efforts to be pursued to limit it to 1.5°C
above pre-industrial levels, recognising that this would significantly
reduce the risks and impacts of climate change. The Glasgow
Climate Pact, agreed at COP26, emphasised the urgent need to
address global warming and climate change. It reiterated the goals
set at COP21, with an additional target of making rapid reductions
in global CO2 emissions of 45% by 2030 compared to 2010 levels,
aiming for net zero emissions by around mid-century, and reducing
other greenhouse gases12. Most countries worldwide have agreed to
transition to reduced use of fossil fuels, which are one of the primary
drivers of climate change.

This transition requires significantly accelerated action in the current

decade, considering that, even with all of the committed policies
and actions, the world is estimated to be on track for warming of ca.
2.7°C13. Even considering all other current pledges and targets which
are yet to be fully translated into specific policies and actions, we
remain estimated to hit ca. 2.1°C of warming.

24 PwC
At the same time, energy security remains a major concern across the globe. While the
energy transition is key to averting catastrophic global warming and climate change, this
cannot be at the expense of the unfinished development agenda in the developing countries
of the world, which have historically been and remain below developed countries, and
even global averages, in terms of per capita incomes, energy consumption and emissions.
It is essential to ensure that the energy transition doesn’t reverse decades of progress in
economic and social development. Otherwise there is a risk that the loss of social and
political license for the many difficult decisions that have to be implemented for a rapid and
deep energy transition, will derail the transition.

The B20 Energy, Sustainability & Climate (ESC) Task Force, for which PwC Indonesia was
the knowledge partner, highlighted the key areas of focus if a just energy transition is to be
achieved, in its policy paper submitted to the G20 in 2022. These areas are summarised in
Table 2.1 below.

Tabel 2.1 - B20 ESC TF policy recommendations

Policy
Policy recommendation Policy Action
Action No
Enhance global cooperation Enhance the pace of energy efficiency improvement across
1.1
on accelerating the transition the transport, buildings, and industrial sectors
to sustainable energy use by
Progressively reduce the carbon intensity of electricity
reducing the carbon intensity
by reducing emissions from coal fired generation and
of energy use through 1.2
accelerating renewable energy deployment, according to
multiple pathways
national circumstances
Accelerate the mitigation of carbon emissions from hard-to-
1.3
abate sectors
Progressively enhance the quantum, predictability and ease
1.4
of financing flows to developing countries
Support climate technology innovation by supporting start-
1.5 ups and research universities with technology, financing,
skilled manpower, knowledge and facilities sharing
Enhance global cooperation 2.1 Ensure an orderly transition in primary energy sources
on ensuring a just, orderly,
Ensure MSMEs' participation in energy transition activities
and affordable transition 2.2
through financing and capacity building
to sustainable energy use
across developed and Assist with transition readiness by ensuring human capital
developing countries 2.3 ability to accommodate change (e.g. knowledge transfer,
upskilling and workshops)
Ensure sustainable practices for mining of essential minerals
2.4
for energy technologies
Enhance global cooperation Accelerate the deployment of integrated electricity access
on enhancing consumer solutions, including off-grid with community participation
3.1
level access and ability to and grid-based electrification to expand energy access and
consume clean, modern enhance economic prosperity
energy
Facilitate the adoption of technology by households and
3.2
MSMEs for efficient, clean, modern energy usage
Ensure a broad base for the transition by addressing
3.3
affordability barriers in developing countries

Source: B20 Energy, Sustainability & Climate Task Force ESC TF) , "B20 Summit Indonesia 2022: Energy,
Sustainability & Climate Task Force Policy Recommendations", Broadcast November 2022 on YouTube,
Kemkominfo, 2022

Mining in Indonesia: Investment, Taxation and Regulatory Guide 25

2.2 The energy transition in Indonesia
Indonesia has demonstrated strong and consistent economic growth so far this century,
with GDP at constant 2010 prices increasing from IDR 4.122 trillion in 2000 to IDR 12.301
trillion in 202314, supported by a primary energy supply expansion of 1,869 MBOE (Million
Barrels of Oil Equivalent). 40% (735 MBOE), 29% (554 MBOE)15 and 17% (317 MBOE) of
this expansion came from coal, oil and gas respectively, reflecting Indonesia's natural
resources endowment and a national policy stance favouring the exploitation of these
resources for economic development and job creation. This strong and consistent growth
has resulted in a more than tenfold increase of per capita GDP over the same period,
from ca. USD 770 (IDR 6.5 million)16 to ca. USD 4,919 (IDR 75 million)17. However, this also
indicates how much further Indonesia has to go in its ambition to become a developed
economy.

In pursuit of the required growth, the country's primary energy supply will have to be
expanded. But if this expansion continues on the historical trend of being driven by fossil
fuels, the consequent growth in greenhouse gas emissions will lead to Indonesia failing to
achieve its international treaty obligations under the Paris Agreement and failing to secure
the international support promised for its transition under the Indonesia – Just Energy
Transition Partnership.

Primary energy supply mix

Source: PwC, “The Energy Transition,” PwC, accessed 2024.

The scale of the challenges faced by Indonesia in planning and implementing its energy
transition can be observed from the two graphs below, which show the dependence on
fossil fuels of the final energy consumption basket.

26 PwC
 Fossil Fuel Dependence in FEC (2022) and Sectoral Fossil Fuel Dependence (2022)

Source: PwC, “The Energy Transition,” accessed 2024.

Indonesia will have to simultaneously transition its final energy consumption and primary
energy supply mix by applying the four levers of transition – energy efficiency, electrification
of the economy, decarbonising electricity generation, and meeting the residual fossil-
molecule demand with alternative fuels. The Just Energy Transition Partnership (JETP)
scenario finalised in the recently released Comprehensive Investment Policy and Plan
includes energy efficiency (minimum energy performance standards for appliances and
machinery across households, industry and commercial sectors), the electrification of the
economy (transitioning from Internal Combustion Engine (ICE) vehicles to electric vehicles
EVs in transport, process heat in industries and the electrification of domestic cooking), and
decarbonising electricity generation (a significant shift to baseload and Variable Renewable
Energy (VRE), as well as biomass co-firing).

The JETP was established in Indonesia during the G20 Summit in Bali on 15 November
2022, with a catalytic USD 20 billion funding agreement between the government, the
International Partners Group (IPG) and the Glasgow Financial Alliance for Net Zero
(GFANZ) to transition Indonesia’s electricity sector. In Indonesia, JETP has developed the
Comprehensive Investment and Policy Plan (CIPP) to guide power sector planning and
policymaking.

The CIPP outlines a potential pathway for the on-grid system (JETP Scenario) to achieve
an emissions target of no more than 250 MT of CO2 in 2030; a renewable energy generation
share of 44% by 2030; and the achievement of net zero emissions in the power sector by
2050. On-grid generation and net capacity changes for each technology are illustrated
below.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 27

Source: Just Energy Transition Partnership (JETP) Secretariat and Working Groups, “Just Energy Transition
Partnership for Indonesia (JETP Indonesia) Comprehensive Investment and Policy Plan,” 2023

In terms of investment costs, at least USD 97.1 billion is required between 2023-2030 and
USD 580.3 billion between 2023-2050 to realise the JETP Scenario, excluding the full extent
of just transition assessments and interventions, projected to cost at least USD0.2 billion by
2030. The average annual investment for the relevant technologies is shown below.

Source: Just Energy Transition Partnership (JETP) Secretariat and Working Groups, “Just Energy Transition
Partnership for Indonesia (JETP Indonesia) Comprehensive Investment and Policy Plan,” 2023

To support the power sector, around 6,000 km of additional transmission lines will be
required by 2030, increasing to around 15,000 km by 2040. For transmission, around USD
42 billion of cumulative capital investment is projected by 2040, and USD 9 billion needs to
be invested in the distribution network.

Specifically for dispatchable renewables: Hydropower is expected to make up 12% of the

energy mix by 2030, with its expansion driven by the addition of 8 GW of new plants, reaching
a total capacity of 65 GW by 2050. Geothermal capacity is set to expand to 3 GW by 2030
and nearly 22 GW by 2050. Bioenergy is projected to constitute 7% of the total electricity
generation mix by 2030, increasing to 9% beyond 2040 as retired coal plants are repurposed.
The investment requirements for dispatchable renewable power total almost USD 197 billion
cumulatively by 2040, with hydropower alone needing at least USD 100 billion.

28 PwC
Beyond 2030, minimal investment is expected to be directed towards new on-grid fossil-
fuel plants, but up to USD 10 billion is projected for repurposing coal power plants to
enhance grid flexibility. Repurposing coal and gas plants for bioenergy or hydrogen requires
an average annual investment exceeding USD7 billion during 2046–2050.

Meanwhile, VRE accounts for 60% of additional power capacity through 2040, led by
the growth of solar PV to 100 GW by 2040 and to close to 265 GW by 2050. Wind power
complements this growth, also accelerating to nearly 30 GW in 2040 and almost 45 GW in
2050, although its expansion is limited due to resource availability. Achieving these levels of
installed capacity will require nearly USD 25 billion of cumulative investment in solar PV and
wind by 2030, and approximately USD 80 billion by 2040.

It should be noted that the success of this pathway is conditional upon integration
measures and investments to expand and upgrade transmission grids, and increase
the system's flexibility to integrate variable renewables, and upon relevant policy
enhancements, among other enablers.

The combined effect of this planned transition is expected to lead to a peak in and then a
reduction in demand for all three major fossil fuels – coal, oil and gas. However, the growth
of renewable energy will also boost mining minerals such as nickel, lithium and graphite.
The energy transition actually necessitates an increase in mining, particularly for critical
minerals.

2.3 Energy transition drives the demand for critical minerals

Critical minerals significantly influence the pace and trajectory of the global energy
transition, as clean energy technologies require many critical mineral resources, including
silica, lithium, and nickel. The growth of aggregate critical mineral demand is driven for the
most part by clean energy technologies such as low-carbon power generation, electricity
networks, EVs, battery storage and hydrogen18. Demand is expected to at least double
(under normal projections) or quadruple (under more ambitious projections) in the next 20
years (2020-2040)19. It is projected that this demand growth will mostly be driven by EVs,
battery storage, and low-carbon power generation20. In particular, the production of EVs
and battery storage for power generation will be the main contributors to increased demand
for three key minerals over the next two decades: lithium, nickel, and graphite. EVs are
already the primary driver of the demand growth for these minerals, accounting for half
of the total existing demand. Meanwhile, the large-scale capacity addition of low-carbon
power generation, particularly wind power, hydrogen fuel cells and PVs, pushes growing
demand for silicon, neodymium, copper, nickel, zinc, cadmium, etc. Demand for these
minerals, due to the continuing expansion of low-carbon power generation, is expected to
double by 2040. Aside from these critical minerals, other commodities including titanium,
tellurium, cobalt, and rare-earth elements (REEs), will also play a vital role in supporting the
clean energy transition.

In essence, critical minerals will have a vital role in accelerating clean energy transition. As
the speed and scale of energy transition increases, the demand and deployment of clean
energy technologies will rise, ultimately driving the demand for critical minerals.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 29

2.4 Mineral requirements by application in the energy transition
EVs use critical minerals for two main components: motors and batteries. Permanent
magnet motors are the most common type of motor used for EVs, and the minerals needed
for such motors include REEs (particularly neodymium), copper, iron, and boron21. EVs
typically use lithium-ion batteries that require lithium, nickel, cobalt, and manganese for the
active cathode material, graphite for the anode, and copper for the current collectors of the
battery cells22. Aluminium and steel are also needed for the battery modules and packs. In
general, it is estimated that EVs require six times more minerals than conventional vehicles,
with the most significant portion of these minerals used in motor and battery fabrication.

Like batteries for EVs, the utility-scale battery storage market is dominated by lithium-
ion batteries, particularly lithium iron phosphate (LFP). Since lithium-ion batteries are
categorised based on the chemistry of their cathodes, the mineral needs will also depend
on the battery type (i.e. cathode and anode selections) some battery types may require
more cobalt but less nickel, and other types may not require nickel, cobalt, or manganese
but more copper.

For solar PV, the module type and the scale of the plant will determine the mineral
intensities of the various components. There are two common types of PV module:
Crystalline silicon (c-Si) and thin films (cadmium telluride [CdTe], copper indium gallium
diselenide [CIGS], and amorphous silicon [a-Si]). Copper is one of the critical minerals
used in c-Si PV panels along with silicon, silver, and other metals. In terms of the impact of
project scale on copper requirements, hardware for distributed solar PV systems typically
requires 40% more copper than for utility-scale projects.

Wind turbines are built using neodymium, copper, REEs, zinc, aluminium, polymers, iron,
steel, fiberglass and concrete. Mineral intensities for wind turbines depend on the turbine
size and type. Current market trends show that gearbox double-fed induction generators
(GB-DFIGs) are currently the leading turbine type in the onshore wind market, with 70% of
the lobal market share, whereas the direct-drive permanent-magnet synchronous generator
(DD-PMSG) is the preferred turbine type for the offshore wind sector. Both turbine types use
REEs (i.e. neodymium, praseodymium, and dysprosium), zinc, and copper, with offshore
projects usually requiring more copper for submarine collectors and large cables23.

The production of low-emissions hydrogen requires the use of electrolysers powered by

renewable or nuclear energy, and electrolysers also contain several key minerals. Although
it is still uncertain which electrolyser type will be dominant, there are three main types of
electrolysers in the current market: alkaline electrolysers, proton exchange membrane
(PEM) electrolysers, and solid oxide electrolysis cells (SOECs) electrolysers. Alkaline
electrolysers primarily contain nickel and zirconium; SOECs electrolysers contain nickel,
zirconium, lanthanum, and yttrium, whereas PEM electrolysers contain platinum, palladium,
and iridium. Fuel cell electric vehicles (FCEVs) will also require fuel cells containing platinum
to convert hydrogen into electricity.

2.5 Sustainable Mining for Critical Minerals: A New Way of Full

Decarbonisation
The Government of Indonesia is now aiming to develop more critical mineral smelting
facilities, which require more substantial local and international investment to achieve.
The goal is to process all mining products domestically, rather than exporting the raw

30 PwC
materials. Interestingly, while Indonesia moves towards the energy transition by securing
critical minerals and their refined outputs, Indonesia still relies on coal-dominated power
generation for processing. This presents a setback in Indonesia’s energy transition efforts.
A coal power plant is indeed currently a favourable option as it provides stable and reliable
electricity with no significant land requirements and low upfront investment. In addition,
coal is also produced locally, and therefore generates more income for Indonesia’s
economy, while domestic renewable energy manufacturers are still limited, and imported
products are still preferred. Consequently, Indonesia is in a dilemma regarding captive
power for the minerals downstreaming programme.

For mining and metals companies, transitioning energy production, supply and
consumption away from fossil fuels and towards sustainable energy sources, without
derailing economic growth and progressing the unfinished development agenda is the
greatest challenge of our times. Achieving this will be an extremely complex endeavour
due to the increasingly narrow window of opportunity and the expected disruption to
established frameworks, political economy considerations, technology, financial and
product markets, supply chains and business models. Such a monumental change to the
status quo will impact all stakeholders, and present opportunities and threats.

The utilisation of critical minerals as a bridge to the energy transition (e.g. their processing)
can be achieved through a combination of the right policies (e.g. incentives, investments,
etc.) and technology optimisation methods. The energy transition for mining facilities can
be initiated through small efforts such as using electric trucks or vehicles, infrastructure
improvements (e.g. road access), the installation of rooftop solar, biomass co-firing options
and gas mix into the complex solutions such as hybrid renewables with existing power
plants, grid extensions to distant geothermal or hydropower sources, centralised efficient
dispatch, the automation of processes and grid modernisation. Some mining companies
have started these kinds of efforts, such as purchasing electric trucks or excavators
and charging them using solar power plants. In other countries like China, Iceland and
Egypt, some smelters or industrial processing facilities are also powered by hydropower,
geothermal and solar PVs with batteries, either at full capacity or at certain capacity levels.
These bring the hope that the solutions are on the doorsteps of mining companies, offering
them the choice either to seize this opportunity or to continue with business-as-usual,
thereby contributing to emissions footprints.

In terms of the regulatory framework, the transformation requires a holistic approach

whereby the government, financiers and investors collaboratively establish a friendly
environment for the mining and metals sector to achieve their own and national climate
targets. The regulations like tax incentives, tax holidays, etc. will de-risk and encourage
mining companies to undertake these initiatives even though the required upfront
investment by these companies is significant. Despite financing needs and pricing impacts,
the value-added of energy transition efforts in critical mining will be advantageous.
The energy transition efforts will forge a path towards energy resilience, environmental
responsibility, and economic prosperity for generations to come.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 31

 Regulatory
3 framework
3.1 Introduction
Minerals and coal mining activities are governed by the Mining Law.
The introduction of the Mining Law in 2009 marked a significant
change to the previous regulatory regime for Indonesian mining.

Contract-based concessions are no longer available for new mining

projects, and both the well-regarded CoW and CCoW frameworks for
foreign investors, as well as the Mining Rights (Kuasa Pertambangan
or “KP”) framework for Indonesian investors, were replaced by a
licensing system based on specified mining areas.

Since its introduction, the Mining Law has encountered a number

of issues, including around domestic processing and/or refining
requirements, export restrictions for unprocessed and/or unrefined
mining products, divestment requirements, domestic market
obligations, and the conversion of CoWs and CCoWs to bring them
into line with the new licensing system. To address some of these
issues, a revision to the Mining Law had been under discussion since
2015.

On 12 May 2020, the House of Representatives (DPR) finally passed

the Bill (Rancangan Undang-Undang) on the amendment to the Mining
Law. On 10 June 2020, Law No. 3 of 2020 on the Amendment to
Law No. 4 of 2009 on Minerals and Coal Mining (the “Amendment to
the Mining Law”) was formally enacted (reference to the Mining Law
herein should be read as also covering the Amendment to the Mining
Law, unless mentioned or used separately).

The Amendment to the Mining Law amends, clarifies and adds

provisions regarding mining business activities, licensing, transfers of
mining licences and shares in mining companies, extensions of CoWs
and CCoWs, the centralisation of Government decisions regarding the
mining sector, and several other matters.

In 2022, other than the issuance of the Amendment to the Mining Law,
another significant regulatory change affecting all industries, including
the mining sector, was made through Government Regulation in Lieu
of Law No. 2 of 2022 on Job Creation (“GR in Lieu of Law 2/2022”)
which was enacted to become Law pursuant to Law No. 6 of 2023
(the “Job Creation Law”).

Previously, Law No. 11 of 2020 on the “Job Creation Law” had been
enacted in November 2020. However, on 25 November 2021, the
law was declared by the Constitutional Court to be conditionally
unconstitutional due to contradicting the 1945 Constitution.
32 PwC
 Photo source: PT Sumbawa Timur Mining

Mining in Indonesia: Investment, Taxation and Regulatory Guide 33

As part of its decision, the Constitutional Court stated that the Job Creation Law should
be adjusted within two years of the date of the Constitutional Court’s decision (i.e. 25
November 2021). As a follow up, the Job Creation Law issued in 2020 was then revoked by
GR in Lieu of Law 2/2022, which was issued as an improvement to the Job Creation Law.
Later in March 2023, the Government issued Law No. 6 of 2023 on “The Stipulation as a
Law of the Government Regulation in Lieu of Law No. 2 of 2022 on Job Creation” which
stipulated GR in Lieu of Law 2/2022 as a law.

The Job Creation Law, as outlined in its preamble, is aimed at increasing job opportunities,
offering support and small businesses, streamlining business processes and foster
investment growth in Indonesia amidst global economic uncertainty. The Job Creation Law
amends several laws, including the Mining Law, to which it adds one new article regarding
the imposition of royalties for coal, and revises one article regarding sanctions. On the
royalty imposition for coal, Government Regulation No. 25 of 2021 on the Implementation
of Energy and Mineral Resources Business (“GR25/2021”) sets out further provisions which
will be elaborated in Section 3.5 of this Guide, “Royalties and the Fiscal Regime”.

The key objective of the Mining Law is to support sustainable national development, for
which purpose it imposes on investors a requirement to ensure the following in relation to
their mining activities:
• Good mining practices;
• Increasing the added value of mining products;
• Improving society;
• Being cautious regarding environmental impacts; and
• Maintaining good governance and bookkeeping.

The Mining Law is dependent upon a significant number of implementing regulations,

which provide detailed guidelines regarding how it should be administered. Most of the
fundamental implementing regulations have been issued, although some clarifications are
still required. At the time of writing, several GRs (including amendments) had been issued
relating to the following areas:
• Mining Areas (GR 25/2023);
• Mining Business Activities (GR 96/2021 as amended by GR 25/2024);
• Reclamation and Mine Closure (GR 78/2010);
• Mineral and Coal Mining Direction and Supervision (GR 55/2010);
• Royalty Rates (GR 26/2022 and GR 25/2021);
• Treatment of Taxation and/or Non-Tax State Revenue (Penerimaan Negara Bukan
Pajak or “PNBP”) in the Minerals Mining Businesses (GR 37/2018);
• Treatment of Taxation and/or PNBP in Coal Mining Businesses (GR 15/2022); and
• Obligation to Deposit Foreign Exchange Export Proceeds of Mining Products (GR
36/2023).

Please note that GR 25/2021, GR 26/2022, GR 37/2018, GR 15/2022 and GR 36/2023 were
not issued specifically as implementing regulations of the Mining Law, but are still relevant
to mining companies operating in Indonesia. For example, GR 26/2022 provides guidance
on the rates of production royalties that the holder of IUPK and IUPK as a Continuation
of Operation of a CoW/CCoW holder should pay (please refer to the discussion regarding
this GR in Section 3.5 of this Guide, “Royalties and the Fiscal Regime”). GR 15/2002
and GR 37/2018 also provide guidance on the treatment of the taxation and/or PNBP of
which Indonesian coal and mineral mining companies should be aware (please refer to
the discussion regarding this GR in Section 5.2 of this Guide, “The Tax Regime for an IUP,
IUPK, People’s Mining Licence (Izin Pertambangan Rakyat or “IPR”), and Rock Mining
Business Licence (Surat Izin Penambangan Batuan or “SIPB”) Company”).

34 PwC
A number of Peraturan Menteri (PerMen) and/or decrees have also been issued by the
Ministry of Energy and Mineral Resources (MoEMR). Some of the key regulations relate to:
a. The Procedures for the Granting of Areas, Licences, and Reporting of the Business
Activities of Mineral and Coal Mining (PerMen 7/2020 as amended by PerMen 16/2021
and as partially revoked by PerMen 10/2023);
b. The Mineral and Coal Mining Business (PerMen 25/2018 as most recently amended
by PerMen 17/2020);
c. Determination of Mining Areas (PerMen 37/2013);
d. Delegation of Authority for Issuing Mining Licences (PerMen 25/2015 as
amended by PerMen 19/2020);
e. The Supervision of Business Activities in the Sectors of Energy and Mineral Resources
(PerMen 47/2017 as partially revoked by PerMen 7/2020);
f. Procedures for the Grant of Areas, License, and Reporting on Mineral and Coal Mining
Business Activities in the Sectors of Energy and Mineral Resources (PerMen 7/2020 as
amended by PerMen 16/2021 and partially revoked by PerMen 10/2023);
g. The Coal Price Determination for Mine Mouth Power Plants (PerMen 9/2016, as
amended by PerMen 24/2016);
h. The Divestment Procedures and the Mechanism for the Determination of the Price of
Divestment Shares (PerMen 9/2017, as amended by PerMen 43/2018);
i. The Implementation of Good Mining Practice and the Supervision of Minerals and
Coal Mining (PerMen 26/2018);
j. The Completion of Construction of Domestic Metallic Mineral Refinery (PerMen
7/2023 as revoked by PerMen 6/2024);
k. Guidelines on the Preparation, Submission, and Approval of the Work Plan, Budget
and Guidelines on Reporting of Mineral and Coal Business Activities (PerMen
10/2023);
l. Determination of the Types of Commodities Classified as Strategic Minerals (MoEMR
Decree No. 69/K/MB.01/MEM.B/2024);
m. The Domestic Market Obligation for Coal (KepMen 267/2022 as amended by MoEMR
Decree No. 399.K/MB.01/MEM.B/2023).

In addition to the above regulations, several other regulations are also applicable to mining
companies operating in Indonesia:
a. GR 36/2023, concerning “Foreign Exchange From Export Proceeds From Natural
Resources Business, Management, and/or Processing Activities”.
b. Ministry of Finance (“MoF”) Regulation (Peraturan Menteri Keuangan or “PMK”) No.
38 of 2024 concerning “The Determination of Export Goods that are Subject to
Export Duty and Export Duty Tariffs” (“PMK 38/2024”). Please refer to Section 3.4 of
this Guide, “Mandatory In- Country Processing and Export Restrictions” for further
discussion of PMK No. 38/2024.
c. Minister of Trade Regulation (Peraturan Menteri Perdagangan or “PerMenDag”)
No. 40/2020, as amended by PerMenDag 65/2020, concerning the “Provisions for
the Use of Sea Transportation and National Insurance for the Export and Import of
Certain Goods”. Please refer to Section 3.4 of this Guide, “Mandatory In-Country
Processing and Export Restrictions”, and the sub-section on the “Use of National Sea
Transportation and Insurance for Coal Exports”, for further discussion of PerMenDag
40/2020, as amended by PerMenDag 65/2020.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 35

Hierarchy of the current regulatory framework

Mining Law No. 4/2009 as amended by the Amendment to Mining Law No. 3/2020

GRs

Mining Business Mineral and Coal

Mining Areas Activities Reclamation Mining Direction and Royalty Rates
GR 25/2023 GR 96/2021 and GR and Mine Closure Supervision GR 26/2022, GR
25/2024 GR 78/2010 GR 55/2010 25/2021

Treatment of Treatment of
Taxation and/or Taxation and/or
Non-Tax State Non-Tax State
Revenue in Minerals Revenue in Coal
Mining Businesses Mining Businesses
GR 37/2018 GR 15/2022

MoEMRs
Supervision of
Mining Areas, Delegation of Business Activities Benchmark Pricing
Licensing and Authority for Issuing in the Sector of PerMen 7/2017 as
Reporting in Mineral Determination Mining Licences Energy and Mineral
of Mining Areas amended by PerMen
and Coal Mining PerMen 25/2015 as Resources
PerMen 37/2013 PerMen 48/2017 as 44/2017, PerMen
PerMen 7/2020 and amended by MoEMR 19/2018, and PerMen
revoked by PerMen
PerMen 16/2021 19/2020 41/2018 and PerMen 11/2020
7/2020

Increasing Mineral
Value Added Restriction
Coal Price DMO Through Processing on Exports of Divestment
Determination for PerMen 25/2018 as and Refining Processed and Procedures and
Mine Mouth Power amended by PerMen Activities Refined Minerals Mechanism for Price
Plants 50/2018, PerMen PerMen 25/2018 as PerMen 25/2018 as Determination
PerMen 9/2016 as 11/2019 and PerMen amended by PerMen amended by PerMen PerMen 9/2017 as
amended by PerMen 17/2020 50/2018, PerMen 50/2018, PerMen amended by PerMen
24/2016 11/2019 and Permen 11/2019 and PerMen 43/2018
17/2020 17/2020

Mine Reclamation
and Closure
PerMen 26/2018

Photo source: PT Agincourt Resources

36 PwC
 Photo source: PT Antam Tbk

Mining in Indonesia: Investment, Taxation and Regulatory Guide 37

3.2 Mining Areas, Mining Licences, and Reporting in relation to
Minerals and Coal Business Activities

A. Mining Areas

Based on the Mining Law, there are several terms used to describe mining areas and their
categorisation, as follow:
• Mining Jurisdiction Area (Wilayah Hukum Pertambangan or “WHP”) means the entire
land space, or sea space, including the space under the earth as one unit of area,
namely the Indonesian archipelago, the land under the water, and the continental
shelf;
• Mining Area (Wilayah Pertambangan or “WP”) means a potential area for the
extraction of minerals and/or coal that is not bound by governmental administrative
boundaries as part of the national spatial planning;
• Mining Business Area (Wilayah Usaha Pertambangan or “WUP”) means a part of a
mining area for which data, geologicaly potential, and/or information about geology has
already been obtained;
• Mining Business Licence Area (Wilayah Izin Usaha Pertambangan or “WIUP” means an
area for which authorisation has been granted to an IUP or SIPB holder;
• A People’s Mining Area (Wilayah Pertambangan Rakyat or “WPR”) means a part of a
mining area where small-scale mining activities are carried out;
• A State Reserve Area (Wilayah Pencadangan Negara or “WPN”) means a part of a
mining area that is reserved for use in the national strategic interest;
• A Special Mining Business Area (Wilayah Usaha Pertambangan Khusus or “WUPK”) means
a part of a mining area for which data, geologicaly potential, and/or
information about geology that may be commercialised has already been obtained; and
• A Special Mining Business Licence Area (Wilayah Izin Usaha Pertambangan Khusus or
“WIUPK”) means an area for which authorisation has been granted to a Special
Mining Business Licence holder.

The implementing regulations of the Mining Law that provide further guidance about mining
areas are GR 25/2023, GR 96/2021 (as amended by GR 25/2024), PerMen 37/2013 and
PerMen 7/2020 (as amended by PerMen 16/2021 and as partially revoked by PerMen
10/2023).

Based on the Mining Law and the Amendment to the Mining Law:
• WPs, as part of a WHP, are to be stipulated by the Central Government (i.e. the
MoEMR), after being determined by the Regional Government at the provincial level
and consulted on with DPR of the Republic of Indonesia;
• Determination of WPs includes the determination of WUPs, WPRs, WPNs, and
WUPKs; and
• A WPN can be utilised in part or as a whole upon approval by the DPR of the Republic of
Indonesia.

Pursuant to GR 25/2023, the preparation of a WP is to be conducted through investigation

and research on a WHP and a preparation plan on the WP. The investigation and research
on a WHP are conducted by the MoEMR to obtain data and information on the distribution
of carrier rock formations, indications, resources and/or mineral and/or coal reserves. The
MoEMR may assign state research institutions and/or regional research institutions to

38 PwC
conduct such investigations and research on a WHP. GR 25/2023 further stipulates that the
WP preparation plan shall be prepared by the MoEMR and shall be used as the basis of WP
determination.

One WUP may include one or several WIUPs. WIUPs consist of:
• Radioactive mineral WIUPs;
• Metal mineral WIUPs;
• Coal WIUPs;
• Non-metal mineral WIUPs;
• Non-metal mineral of certain type WIUPs; and/or
• Rock WIUPs.

Furthermore, according to GR 25/2023, the MoEMR may assign a state research institution,
National State-Owned Company (Badan Usaha Milik Negara or “BUMN”), Regional
Government-Owned Company (Badan Usaha Milik Daerah or “BUMD”), or a private business
entity to conduct investigation and research on a WIUP for the preparation of a metal mineral
or coal WIUP or a coal WIUP for development and/or utilisation. Such assignment shall be
conducted through the offering of assignment areas by the MoEMR to the state research
institution, BUMN, or BUMD or the making of applications for assignment areas by BUMNs,
BUMDs, or private business entities. The assignment shall be granted for a maximum period
of 3 years, and may be extended twice for a period of one year each.

Additionally, pursuant to the GR 25/2023, WUPs, WPRs, WPNs, WUPKs, WIUPs, and
WIUPKs determined prior to the issuance of GR 25/2023 shall remain valid and must be
adjusted to comply with the provisions under GR 25/2023 within two years of the enactment
of GR 25/2023 (i.e. 5 May 2025). At the time of writing, PerMen 14/2023 and MoEMR Decree
No. 54.K/MB.01/MEM.B/2024 respectively are the relevant implementing regulations of GR
25/2023.

The Determination and Granting of Non-Metal Mineral and Rock WIUPs

Based on GR 25/2023, the MoEMR determines the total areas and boundaries of non-
metal mineral or rock WIUPs, based on the applications submitted by business entities,
cooperatives, or individual companies (perusahaan perseorangan). Based on PerMen
7/2020, prior to the determination of a non-metal mineral and rock WIUP:
• The MoEMR shall receive a recommendation from the Governor and/or the relevant
governmental institution; and
• The Governor shall receive a recommendation from the Regent/Mayor and/or the
relevant institution.

The recommendation by the Governor or the Regent/Mayor shall be provided no later than
five business days after the date on which the request for such a recommendation was
received.

The Directorate General of Minerals and Coal (DGoMC), on behalf of the MoEMR or the
Governor, shall perform administrative and technical evaluations on the requests that are
submitted by business entities, cooperative, or individuals and, based on the results of the
evaluation, the DGoMC, on behalf of the MoEMR or the Governor, shall make a decision to
accept or refuse the request for WIUP determination, no later than ten business days after
the date on which the request was received.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 39

When the request has been accepted, the DGoMC will issue a payment instruction letter
to the requesting party to pay the reserve funds. On behalf of the MoEMR or the Governor,
the DGoMC shall provide a determination for a non-metal mineral and/or rock WIUP to the
requesting party that provided proof of payment of reserve funds into the state treasury.

Investors should consider the provisions in KepMen 1798/2018 and KepMen 258/2023
which, at the time of writing, provide the implementing guidelines for the determination of
non-metal mineral and/or rock WIUPs.

In relation to the WIUP and WIUPK, the MoEMR issued KepMen ESDM No. 284.K/MB.01/
MEM.B/2024, which provides the calculation formula for information data compensation for
the WIUP and the WIUPK. Investors are now able to access data detailing the location and
coordinates of coal and mineral contents, as well as data relating to the exploration stage,
covering both coal and mineral reserves.

On 11 April 2022, the Government issued Perpres No. 55/2022 concerning “The Delegation
of Granting Business Permits in the Mineral and Coal Mining Sector” which regulates the
delegation of authority from the Central Government to Regional Governments, including
among other matters:
• Granting and determining the area of business licences for non-metal mineral mining,
the mining of certain types of non-metal minerals and rock mining areas; and
• Determination of the benchmark prices for non-metal minerals, certain types of non-
metal minerals, and rock mining.

The Evaluation and Granting of Metal, Minerals and Coal WIUPs

Pursuant to the Amendment to the Mining Law and GR 25/2023, WIUPs are stipulated and
granted by the MoEMR as follow:
a. The sizes and boundaries of radioactive mineral WIUPs shall be determined by the
MoEMR based on the recommendations provided by the relevant Government institution
in the nuclear sector;
b. The size and boundaries of metal, minerals and coal WIUPs shall be determined by the
MoEMR after being determined by the Governor; and
c. The size and boundaries of non-metal minerals, certain type of non-metal minerals,
and rock WIUPs shall be determined by the MoEMR based on the applications
submitted by business entities, cooperatives, or individual companies.
A metal mineral and coal WIUP is granted to a business entity, a cooperative, or an
individual through an auction. The announcement of the auction shall be made at least one
month prior to the auction, based on the following requirements:
• It shall be announced in at least one local newspaper and/or one national newspaper;
• It shall be announced by the office of the MoEMR, or through its official website; and/or
• It shall be announced by the office of the Provincial Government that manages minerals
and coal, or through its official website.

The auction shall be performed by:

• The MoEMR, if the metal, minerals and coal WIUP area is located between two provinces
or is in a sea area that is more than 12 sea miles from the coastline to the sea and/or
archipelagic waters; or
• The Governor, if the metal, minerals and coal WIUP is located in one province, or in a
sea area that is less than or equal to 12 sea miles from the coastline to the sea and/or
archipelagic waters.

40 PwC
Based on PerMen 7/2020 (as amended by PerMen 16/2021), the types of entities that are
allowed to participate in a metal, minerals or coal WIUP auction are determined by the
acreage of the WIUP area, as follows:

Table 3.1 Types of Entities

≤ 500 ha > 500 ha
• Local BUMDs; • BUMNs;
• (Local) National enterprises;* • BUMDs
• Cooperatives; and/or • National enterprises*;
• Individuals (consisting of individual persons, • Foreign held entities Penanaman Modal Asing
limited partnerships (perusahaan komanditer), ("PMA"); and/or
or firms (perusahaan firma)) • Cooperatives

Note:
*) A national enterprise is defined as a fully Indonesian-owned company

Auctions of metal, minerals and coal WIUPs are carried out in two stages, as follow:
i. Pre-qualification
During the pre-qualification stage, auction participants are valuated based on the
administrative, technical, and financial requirements. The auction participants are
required to meet certain administrative, technical, and financial requirements. These
technical requirements include experience in mining, the availability of human
resources, and work plans.
ii. Qualification
Every auction participant who passes the pre-qualification stage submits an offer
price.

Based on PerMen 7/2020 (as amended by PerMen 16/2021), the prospective winner of the
auction is determined by the Auction Committee, based on the weighted average results of
the evaluations performed at the pre-qualification and qualification stages, with the pre-
qualification result weighted at 40% and the offering price at 60%.

Previously, PerMen 11/2018 placed a greater emphasis on the pre-qualification aspects,

weighting this result at 70%, with the offer price at 30%. However, PerMen 11/2018 was
revoked by PerMen 7/2020, which applied basically the same calculation criteria but with a
greater weighting on the offer price.

The guidelines regarding the implementation, organisation, tasks, and authority of the
members of the Auction Committee, the terms and conditions applicable to the participants
in a metal minerals or coal WIUP auction, and the implementation of the metal, minerals
and coal WIUP auctions are stipulated in KepMen 1798/2018 and KepMen 258/2023.

The Evaluation and Granting of Metal, Minerals and Coal WIUPKs

WIUPKs are determined based on WUPKs. Pursuant to GR 25/2023, the MoEMR shall
designate WUPKs upon the determination of the WUPKs by the Governor. WUPKs may be
determined based on:
a. WPN that will be exploited and determined to be WUPKs;
b. Mining areas of CoWs/CCoWs determined to be WIUPKs;
c. Ex-WIUP or WIUPK determined to be WUPK based on the MoEMR’s evaluation; and/
or
d. Ex-mining areas of CoWs/CCoWs determined to be WUPK based on the MoEMR’s
evaluation.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 41

There are two mechanisms for the determination and granting of metal, minerals and coal
WIUPKs, as follows:

a. The Determination and Granting of Metal, Minerals and Coal WIUPKs by Priority

The determination and granting of metal, minerals and coal WIUPKs by priority is
managed by the MoEMR, and is available to BUMNs and BUMDs. Priority for the
granting of WIUPKs shall be given to BUMDs established by the Provincial or Regional/
City Government and located at the WIUPK that is going to be offered.

Based on PerMen 7/2020 (as partially amended by PerMen 16/2021), BUMNs and
BUMDs may engage private business entities whose capital is wholly sourced from
domestic investment as partners in their bids by priority to be granted with metal,
minerals and coal WIUPKs. This requirement did not exist under the previous regulation
(i.e. PerMen 11/2018).

Based on PerMen 7/2020, a BUMN or BUMD that intends to obtain a WIUPK needs to
meet the administrative, technical, and financial requirements. In the event that a private
business entity is engaged as a partner by the BUMN or BUMD, this partner must also
meet the relevant administrative, technical, and financial requirements.

If there is only one BUMN that is interested and eligible, the WIUPK shall be directly
granted to this BUMN. In this case, the DGoMC, on behalf of the MoEMR, shall deliver
the direct appointment letter to the BUMN, and shall also instruct the BUMN to provide
a share investment for the BUMD of at least 10%, provided that the BUMN can either:
• Form a new joint venture entity no more than 90 calendar days after the appointment
date; or
• Appoint an affiliate no more than 60 calendar days after the appointment date.

When providing this share participation, the BUMN shall coordinate with the Provincial
and Regional/City Government where the WIUPK is located. If, following such
coordination, BUMDs established by both the provincial and the Regional/City
Governments are interested in making the share investment, then the share
investment shall be divided into:
• 40% of the total percentage share investment for a BUMD that is established by the
Provincial Government; and
• 60% of the total percentage of the share investment for a BUMD that has been
established by the Regional/City Government.

The share participation by a BUMN and BUMD in a new joint venture entity or in a
BUMN affiliate must be at least 51%. Further, based on PerMen 7/2020 (as amended by
PerMen 16/2021), a BUMN may offer share participation in the new joint venture entity,
or in the BUMN affiliate referred to above, to a private business entity whose capital is
entirely generated from domestic investment.

If there is only one BUMD that is interested and eligible, the WIUPK shall be directly
granted to this BUMD. In this case, the DGoMC, on behalf of the MoEMR, shall deliver
the direct appointment letter to the BUMD, and shall inform it that:
• The BUMD itself can directly carry out mining activities within the WIUPK; or
• The BUMD can form a new business entity as a joint venture within no more than 90
calendar days of the date of the direct appointment letter.

42 PwC
 Photo source: PT Sumbawa Timur Mining

A private business entity may have a share participation in the BUMD, or in a new joint
venture entity as referred to above, but such participation by a private business entity
is capped at 49%.

Further, in accordance with Article 83A of GR 25/2024, a WIUPK may be offered on

a priority basis to business entities owned by religious community organisations,
provided that:
• The proposed WIUPK is an area that was an ex CCoW;
• IUPK and/or the share ownerships held by religious community organisations in
the relevant business entities may not be handed over and/or transferred without
prior approval from the MoEMR;
• The religious community organisation must hold a majority an controlling stake in
the relevant business entity, and such business entity is prohibited from forming a
cooperation with the former CCoW holder and/or its affiliates; and
• The offering of WIUPK by priority for religious community organisation is valid for 5
(five) years from the issuance of GR 25/2024.

b. The Determination of Metal, Minerals and Coal WIUPKs by Auction

The auction process for metal, mineral and coal WIUPKs is conducted by the MoEMR
when more than one BUMN or BUMD is interested in the WIUPK being offered.

Auctions of WIUPKs to private business entities engaged in the mineral and coal
mining businesses will only be conducted when:
• No BUMN or BUMD is interested in the WIUPK offer; and/or
• No BUMN or BUMD is able to meet the administrative, technical, and financial
requirements.

Based on PerMen 7/2020 (as amended by PerMen 16/2021), the auction procedures,
evaluation of pre-qualification phase documents, evaluation of bid prices, weighting of
the results of the evaluation of the pre-qualification documents and the bid prices, as
well as the ranking of the prospective auction winners of the metal, minerals and coal
WIUPK are similar to those for metal, mineral and coal WIUP auctions.

The following table summarises the applicable provisions of PerMen 7/2020 (as
amended by PerMen 16/2021), when a WIUPK auction is won by a BUMN, a BUMD,
or a private business entity:

Mining in Indonesia: Investment, Taxation and Regulatory Guide 43

 Table 3.2 Applicable Provision Entities
When a WIUPK
When a WIUPK auction is won by When a WIUPK auction is won by
auction is won by a
a BUMN a private business entity
BUMD
• The MoEMR shall announce the • The MoEMR • The MoEMR shall announce the
BUMN as the auction winner, and shall announce private business entity as the
shall instruct the BUMN to provide a the BUMD as the auction winner, and shall instruct
share participation by a BUMD of at auction winner, and the entity to provide the BUMD
least 10%, provided that the BUMN shall inform the with a share participation of 10%,
can: BUMD that it can provided that the private business
i. Form a new joint venture entity either: entity can either:
within 90 calendar days of the i. Directly carry i. Directly perform mining
determination of the auction out the mining activities within the WIUPK; or
winner; or activities within ii. Form a joint venture entity no
ii. Appoint an affiliate within the WIUPK; or more than 90 calendar days
60 calendar days of the ii. Form a joint after the determination of the
determination of the auction venture entity auction winner.
winner. no more than • In providing the share
• In providing the share participation, 90 calendar participation, the private business
the BUMN shall coordinate with days after the entity shall coordinate with the
the Provincial and Regional/City determination Provincial and Regional/City
Governments in the area where the of the auction Governments in the area where
WIUPK is located. winner. the WIUPK is located.
• If, following such coordination, • A private business • If, following such coordination,
both the Provincial and Regional/ entity may have a both the Provincial and Regional/
City Governments are interested share participation City Governments are interested in
in taking the share investment, the in the BUMD or in taking the share participation, the
10% share investment shall be a new joint venture 10% share participation shall be
divided as follows: entity as referred divided as follows:
- 40% of the total percentage of to above, with a - 40% of the total percentage of
the offered share investment maximum share the offered share investment
shall be given to a BUMD ownership of 49%. shall be given to a BUMD
established by the Provincial established by the Provincial
Government; and Government; and
- 60% of the total percentage of - 60% of the total percentage
the share investment shall be of the share investment
given to a BUMD established by shall be given to a BUMD
the Regional/City Government. established by the Regional/
• The share participation of a BUMN City Government.
and BUMD in a new joint venture
entity, or in the BUMN affiliate, as
referred to above, must be at least
51%.

The implementing guidelines for the granting of metal, minerals and coal WIUPKs by
priority and the procedures for metal, mineral and coal WIUPK auctions are stipulated
in KepMen 1798/2018 and KepMen 258/2023. Although these guidelines are set out
under KepMen 1798/2018, being the implementing regulation of PerMen 11/2018,
which was revoked by PerMen 7/2020, PerMen 7/2020 stipulates that any Ministerial
decrees issued as implementing regulations of PerMen 11/2018 shall remain valid
provided that they do not contradict PerMen 7/2020.

44 PwC
B. Mining Licences

Types of Mining Business Licences

Under the Mining Law, mining licences may be issued to one or more parties within the
designated WPs, as follows:
• An IUP is a general licence to conduct mining business activities in a WUP area;
• An IUPK is a licence to conduct mining activities in a specific WPN area within which
mining business activities can be carried out; and
• An IPR is a licence for conducting a mining business in a WPR area of a limited size
and investment. IPRs are not available to foreign investors.

The implementing regulations of the Mining Law that provide further guidance on mining
licenses are GR 96/2021, PerMen 25/2015, and PerMen 7/2020.

Based on PerMen 7/2020, mining business licenses are as follow:

a. Exploration Mining Business Licence (“Exploration IUP”)

An Exploration IUP is a mining business licence granted for the performance of

general surveys, exploration, and feasibility studies within a WIUP.

b. Exploration IUPK

An Exploration IUPK is a mining business licence granted for the performance of

general surveys, exploration, and feasibility studies within a WIUPK.

c. IUP-OP (“Izin Usaha Pertambangan-Operasi Produksi”)

An IUP-OP is a mining business licence granted for performing production operation

activities (i.e. construction, mining, processing and/or refining, transportation, and
sales) within the WIUP.

d. IUPK-OP ("Izin Usaha Pertambangan Khusus Operasi Produksi")

An IUPK-OP is a mining business licence granted for performing production operation

activities (i.e. construction, mining, processing and/or refining, transportation, and
sales) within the WIUPK.

e. Mining Business Licence for Production Operation Specifically for Processing and/or
Refining (“IUP-OP Specifically for Processing and/or Refining”)

An IUP-OP Specifically for Processing and/or Refining is a mining business licence

granted specifically for purchasing, transporting, processing, and refining, as well as
for selling mineral and coal commodities.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 45

 Under Article 104 of the Mining Law, an IUP-OP Specifically for Processing and/
or Refining is required for a company, cooperative, or individual entering into a
cooperation arrangement to carry out processing and refining for the benefit of the
holders of an IUP-OP and an IUPK-OP. However, pursuant to Article 104 (1) of the
Amendment to the Mining Law, an IUP-OP Specifically for Processing and/or Refining
is no longer required for a non-integrated refining and processing business, or for the
benefit of IUP-OP and IUPK-OP holders. Instead, it requires an industrial business
licence that is issued based on the laws and regulations in the industrial sector. For
existing IUP-OP Specifically for Processing and/or Refining licences issued before
the enactment of this law, Article 169C point e of the Amendment to the Mining Law
stipulates that such existing licences shall be converted into industrial business
licences issued based on the laws and regulations in the industrial sector within one
year at the latest from the Law entering into force (i.e. 10 June 2020).

Before the enactment of the Amendment to the Mining Law, a company, cooperative,
or individual carrying out processing and refining was also required to obtain an
Industrial Business Licence (Izin Usaha Industri) in addition to an IUP-OP Specifically
for Processing and/or Refining. Following the issuance of the Amendment to the
Mining Law, this dual licensing issue. which caused confusion and is presumed to
be a brake on the development of the smelter industry, has now been clarified and
addressed.

Under GR 96/2021, the MoEMR shall submit a list of holders of IUP-OP Specifically
for Processing and/or Refining and IUP-OP Specifically for Processing and/or
Refining documents to the Ministry of Industry within a one-year period ending on 10
June 2021, during which the MoEMR shall still be the authorised institution for the
monitoring of mining activities carried out by the IUP-OP Specifically for Processing
and/or Refining. Afterwards, the supervision of the standalone processing and/or
refining activities shall be supervised by and subject to the provisions regulated by the
Ministry of Industry.

f. Mining Business Licence for Production Operation Specifically for Transportation and
Sales (“IUP-OP Specifically for Transportation and Sales”)

An IUP-OP Specifically for Transportation and Sales is a mining business licence

granted specifically for purchasing, transporting, and selling mineral and coal
commodities.

g. Mining Service Business Licence (Izin Usaha Jasa Pertambangan or “IUJP”)

An IUJP is a mining business licence granted for performing core mining service
business activities in relation to certain phases/parts of the mining process.

Pursuant to the Amendment to the Mining Law, the scope of the mining services
business is limited to the implementation of general surveys, exploration, feasibility
studies, mining construction, transportation, mining environments, reclamation and
post-mining activities, and/or mining.

46 PwC
In order to improve the welfare of the community around the mine site, the holder of an IUP-
OP or IUPK-OP may assign alluvial mineral sediment excavation activities to the community
through a partnership programme, with prior consent from the DGoMC, on behalf of the
MoEMR. The community around the mine site shall have an IUJP issued by the
Governor. The partnership programme shall be based on a cooperation agreement between
the holder of the IUP-OP or IUPK-OP and the holder of the IUJP, in compliance with the
criteria set out under PerMen 7/2020.

PerMen 7/2020 stipulates that business entities that are not engaged in the mining business
but intend to sell any minerals or coal excavated (as a by-product of their non-mining
activities), are still required to obtain an IUP-OP for Sales. Business entities that utilise such
excavated minerals or coal for their own use and/or for non-commercial purposes are not
required to have an IUP-OP for Sales.

Based on the Transitional Provisions of PerMen 7/2020:

• Clear and Clean Status and/or the Clear and Clean Certificates that were issued
before the enactment of PerMen 7/2020 shall remain valid;
• Non-metal minerals and rock IUPs issued before the enactment of PerMen 7/2020 do
not require Clear and Clean Status or a Clear and Clean Certificate; and
• An IUP issued after the enactment of PerMen 7/2020 does not require Clear and Clean
Status.

In addition to these mining business licences, the 2020 Amendment to the Mining Law
introduces the following mining business licences:

a. SIPB
A SIPB is a mining business licence granted to allow engagement in the mining
of certain types of rock for construction needs, or for the purpose of supporting
the development of projects funded by the Central Government and/or Regional
Government. The coverage of SIPB includes planning, mining, processing,
transportation and sales.

b. Assignment Licence (Izin Penugasan or “IP”)

An IP is a mining business licence granted for the exploitation of any radioactive
mineral in accordance with the provisions of the laws and regulations governing the
nuclear sector.

c. IUPK as a Continuation of Operation of a CoW/CCoW (IUPK sebagai Kelanjutan

Operasi Kontrak/Perjanjian)
An IUPK as a Continuation of the Operations of a CoW/CCoW is a mining business
licence granted as an extension of a CoW or CCoW upon the expiry of the
respective CoW or CCoW. Although the Mining Law does not mention the IUPK
as a Continuation of the Operations of a CoW/CCoW, this licence was introduced
through the previous implementing regulations of the Mining Law to accommodate
the ongoing operations of CoW/CCoW holders. The issuance of an IUPK as a
Continuation of the Operations of a CoW/CCoW is elaborated further in subsequent
sections of this guide.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 47

Ownership of Mining Business Licences

Based on the Mining Law, the Amendment to the Mining Law, and PerMen 7/2020 (as
amended by PerMen 16/2021 and as partially revoked by PerMen 10/2023), mining
business licences may be issued to the following parties:

Exploration IUPK IUP-OP Specifically

Exploration IUP
and IUPK-OPs for Transportation and IUJP
and IUP OPs
Sales
• Business entities • Business entities • Business entities • Business entities
• Cooperatives • Cooperatives • Cooperatives
• Individuals • Individuals • Individuals*

*) Individuals who are holders of IUJPs may engage only in the mining services business only in relation to
consultancy and/or planning activities.

In the above table, business entities include BUMNs, BUMDs, and private business
entities. PerMen 7/2020 does not further define private business entities. However, based
on GR 96/2021, as amended by GR 25/2024, private business entities include Domestic
Investment companies (Penanaman Modal Dalam Negeri or “PMDN”) and PMAs. Under the
previous Mining Law 11/1967, a CoW/CCoW could be held by either foreign or domestic
investors, whilst a KP could be issued only to domestic investors.

The Mining Law therefore removes some of the distinctions between Indonesian and foreign
investors in the mining sector, and is consistent with the current Positive List of Foreign
Investment issued by Indonesia’s Investment Coordinating Board (Badan Koordinasi
Penanaman Modal or “BKPM”), which allows 100% foreign investment in the mining sector,
subject to the share divestment rules discussed in Section 3.6 of this Guide, “Divestment of
Foreign Shareholdings”.

Authority to Issue IUPs

One of the key points of the 2020 Amendment to the Mining Law is the greater control
on the part of the Central Government over mining activities. Pursuant to Article 35 of the
Amendment to the Mining Law, mining business licences shall be issued by the Central
Government. The Central Government may delegate its authority to grant mining business
licences to Provincial Governments. Article 169c of the Amendment to the Mining Law
further stipulates that the authority of the Provincial Government granted under the
Mining Law and other laws regulating the authority of the Provincial Government in mining
activities must be interpreted as the authority of the Central Government unless otherwise
stipulated in the Amendment to the Mining Law. For instance, based on Perpres 55/2022,
the Central Government delegates the authority to grant business licences of non-metal
mineral mining to the Provincial Government.

In 2022, following the issuance of Perpres 55/2022, the MoEMR issued Circular Letter
No. 1.E/HK.03/MEM.B/2022 on the Guidance for the Implementation of Presidential
Regulation No. 55 of 2022 regarding the Delegation of Authority for the Issuance of
Business Licensing in the Mineral and Coal Mining Sector (“Circular Letter 1/2022”).
Circular Letter 1/2022 includes the following key provisions:
1. Perpres 55/2022 shall come into force as of 11 April 2022;
2. Starting from 11 April 2022, the authority of the Central Government in relation
to the management of mineral and coal mining passes to the provincial Regional
Government, which includes among others:

48 PwC
 a. Granting non-metal mineral WIUPs and rock WIUPs;
b. Services related to the issuance of certain IUPs, SIPBs, IPRs, Transportation and
Sales Business Licences, IUJPs, and IUP-OPs for Sales; and
c. Stipulating the benchmark prices for non-metal minerals, certain types of non-
metal minerals and rocks; and
3. The above licences shall be applied for through the Online Single Submission (“OSS”)
system as a one-door integrated service, and the applicants must obtain a Business
Identification Number (Nomor Induk Berusaha or “NIB”) in accordance with the correct
Standard Indonesian Business Field Classifications (Klasifikasi Baku Lapangan Usaha
or “KBLI”).

Based on PerMen 7/2020 and the Amendment to the Mining Law, the issuance of IUPs is
performed as follows:

Table 3.4 The Issuance of IUPs

Exploration IUP*
Grantor Condition
MoEMR If the WIUP is located:
• Across more than one province;
• In ocean territory that is more than 12 miles from the shoreline towards open sea
and/or towards archipelagic waters; or
• Directly adjacent to another country.

An Exploration IUP is also granted by the MoEMR if:

• The application for the Exploration IUP is made by a listed/public company; and
• The application for the licence relates to more than one metal, minerals or coal
IUP.
Governor If the WIUP is located:
• Within one province; or
• In ocean territories that are up to 12 miles from the shoreline towards the open sea
and/or towards archipelagic waters.

*According to Circular Letter 1/2022, the provincial regional government issue IUPs to a PMDN company
(Penanaman Modal Dalam Negeri or domestic investment company) engaging in non-metal minerals, certain
types of non-metal minerals, and rock mining business activities if the WIUP is located within one province or
in ocean territories that are up to 12 miles from the shoreline.

Photo source: PT Bukit Asam Tbk

Mining in Indonesia: Investment, Taxation and Regulatory Guide 49

 IUP-OP
Grantor Condition
MoEMR If the mining location, processing and/or refining location, as well as the special port
location are located:
• Across more than one province; or
• Directly adjacent to another country.

The IUP-OP is also granted by the MoEMR if:

• The application for the IUP-OP is made by a listed/public company; and
• The application for the licence is made for more than one metal mineral or coal
IUP.
Governor If the mining location, processing and/or refining location, as well as the location of
the special port, are within one province.

Exploration IUPK and IUPK-OP

Grantor Condition
MoEMR An Exploration IUPK and IUPK-OP can only be granted by the MoEMR.

IUP-OP Specifically for Processing and/or Refining*

Grantor Condition
MoEMR If:
• The mining commodities to be processed are from a different province to the
location of the processing and/or refining facilities;
• The mining commodities to be processed are from abroad; and/or
• The processing and refining facilities are located across more than one province.
Governor If:
• The mining commodities to be processed are from the same province as the
location of the processing and/or refining facilities; and/or
• The location of the processing and/or refining facilities is within one province.

IUP-OP Specifically for Transportation and Sales

Grantor Condition
MoEMR If transportation and sales are carried out between provinces and/or nations.
Governor If transportation and sales take place in one province.

IUJP
Grantor Condition
MoEMR If mining service business activities are conducted throughout Indonesia.
Governor If mining service business activities are conducted in one province.

*According to Article 169C point 3 of the Amendment to the Mining Law, an existing IUP-OP Specifically for
Processing and/or Refining licences issued before the enactment of the Amendment to the Mining Law shall
be converted into an industrial business licence based on the laws and regulations in the industrial sector
within one year of the Amendment to the Mining Law coming into force (i.e. no later than 10 June 2021).

The authority of the Governor to issue each of the above-mentioned mining business
licences must be interpreted in line with the delegation of authority by the Central
Government (authority for managing the issuance of certain mining business licences
has been delegated to the provincial regional government as stipulated in Circular Letter
1/2022, as elaborated above). As discussed above, this is because authority to issue mining

50 PwC
business licences pursuant to Article 35 of the Amendment to the Mining Law is now under
the sole authority of the Central Government. Article 169C of the Amendment to the Mining
Law stipulates that governors must hand over to the MoEMR all IUP Exploration, IUP-OP,
IPR, IUP-OP Specifically for Transportation and Sales, and IUJP licences that fell within
their authority before the Law was issued within two years of the law coming into force, in
order for those mining business licences to be updated and evaluated by the MoEMR. The
implementing guidelines for the evaluation of those mining business licences are stipulated
in MoEMR Decree No. 78.K/MB.01/MEM.B/2022 issued in April 2022.

While the Governor as the head of the Provincial Government may still have the right to issue
a mining business licence, that is not the case for Mayors/Regents. All relevant provisions
of the Mining Law granting authority to Mayors/Regents to issue mining business licences
based on the locations of the mining areas have been removed.

Such authority was removed from PerMen 11/2018 (as amended by PerMen 22/2018 and
PerMen 51/2018) and continues under PerMen 7/2020. There is no provision stipulating
that the Mayor/Regent can grant mining business licences. Authority for issuing IUPs
under PerMen 7/2020 is only given to the MoEMR and the Governor. This is in line with the
provisions of the Regional Autonomy Law No. 23/2014 and amendments thereto, which
stipulate that Regencies/Municipal Governments do not have the authority to issue IUPs.

Following this change, the Central Government now has greater control over the process of
issuing mining business licenses.

Following the issuance of the Amendment to the Mining Law, GR 96/2021 as amended by
GR 25/2024, also stipulates that IUPs shall be granted by the MoEMR and the Governor.
An IUP shall only be issued provided the applicant has met the administrative, technical,
environment, and financial requirements. Under GR 96/2021 as amended by GR 25/2024,
holders of Exploration IUPs may carry out operation production activities after obtaining
approval from the MoEMR to upgrade their Exploration IUPs to IUP-OPs.

Through PerMen 25/2015 as amended by PerMen 19/2020 (“PerMen 25/2015”), the MoEMR
has delegated to BKPM the authority to issue the following licences (on behalf of the
MoEMR):
• IUPs, including extensions;
• IUPKs, including extensions;
• IUPKs as a Continuation of Operations under a CoW/CCoW;
• Termination/revocation of, or adjustments to, certain licences;
• IUPs Specifically for Transportation and Sale, including extensions;
• SIPB, including extensions;
• IUP for Sales;
• IPRs, including extensions; and
• IUJPs, including extensions.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 51

Licence Terms and Extensions

Based on the Amendment to the Mining Law, mining business licences are now issued and
extended as follows:
Types of Licences Licence Terms Extensions Notes
1 year (please • Pursuant to Article 42a on the
Coal 7 years
see notes) Amendment to the Mining Law, the
exploration period may be extended
Metal 1 year (please
8 years for one year for each extension,
Minerals see notes)
provided that all of the requirements
Non-Metal are met.
3 years *) N/A
Minerals • Pursuant to Article 41 paragraph
(1) of GR 96/2021, the holder of an
Exploration IUP may conduct the
Production/Operations stage of
activities after obtaining approval
for the application to increase to
Exploration IUPs
the Production Operation stage of
activities from the MoEMR. Such
approval is only granted after the
Rocks 3 years N/A Exploration IUP holder has fulfilled
the administrative, technical,
environmental, and financial
requirements. The request to change
the stage from Exploration to
Production/Operations activities shall
be submitted to the MoEMR no later
than 30 calendar days before the end
of the Exploration stage.
1 year (please • Pursuant to Article 83a of the
Coal 7 years
see notes) Amendment to the Mining Law, the
exploration period may be extended
for one year for each extension,
provided that all of the requirements
are met.
Exploration IUPKs
Metal 1 year (please • Pursuant to Article 97 paragraph (1) of
8 years GR 96/2021, applications to change
Minerals see notes)
an Exploration IUPK to an IUPK-OP
should be submitted no later than 30
calendar days before the expiration of
the Exploration IUPK.
Maximum Applications for extensions of licences
Coal 2 x 10 years
20 years ***) should be submitted:
• No earlier than five years, and at the
Maximum
Metal latest one year prior to the expiration
20 years 2 x 10 years
Minerals of the IUP-OP (for metal minerals,
****)
IUP-OPs non-metal minerals of certain types, or
Non-Metal Maximum coal); and/or
2 x 5 years **)
Minerals 10 years **) • No earlier than two years, and at
the latest, six months before the
Maximum 5 expiration of the IUP-OP (for non-
Rocks 2 x 5 years **)
Years metal minerals or rock).
Maximum
Coal 2 x 10 years Applications for extensions of licences
20 years ***)
should be submitted no earlier than five
IUPK-OPs Maximum
Metal years, and at the latest one year prior to
20 years 2 x 10 years the expiration of the IUPK-OP.
Minerals
****)

52 PwC
 Types of Licences Licence Terms Extensions Notes
Applications for extensions of licences
should be submitted no earlier than five
years, and at the latest one year prior to
the expiration of the IUP-OP Specifically
for Processing and/or Refining. However,
it should be noted that any existing IUP-
IUP-OP Specifically 10 years
OP Specifically for Processing and/
for Processing and/ 30 years for each
or Refining licences issued before the
or Refining extension
enactment of the Amendment to the
Mining Law shall be converted into an
industrial business licence based on the
laws and regulations in the industrial
sector within one year at the latest from
this Law coming into force.
Applications for extensions to licences
IUP-OP Specifically 5 years should be submitted no earlier than
for Transportation 5 years for each six months, or at the latest one month,
and Sales extension prior to the expiration of the IUP-OP
Specifically for Transportation and Sales.
5 years Applications for extensions of licences
IUJPs 5 years for each should be submitted, at the latest, one
extension month prior to the expiration of the IUJP.

*) Certain non-metal mineral companies may be granted an Exploration IUP for a period of seven years.
**) Certain non-metal mineral companies may be granted an IUP-OP for a maximum of 20 years, which is
extendable twice, for a period of ten years per extension.
***) Pursuant to the Amendment to the Mining Law, coal operation production activities that are integrated
with development and/or utilisation activities (activities to increase the value of the coal) may be granted for a
maximum of 30 years, which is extendable for ten years per extension.
****) Pursuant to the Amendment to the Mining Law, metal and minerals production activities that are
integrated with processing and/or refining facilities may be granted for a maximum of 30 years, which is
extendable for ten years per extension.

Once the second extension of an IUP-OP expires, the relevant WIUP must be returned to
either the Central or the Regional Government. If the WIUP relates to metal minerals and
coal, then it could be deemed either a WPN or WIUP/WIUPK. The WIUP would be offered
via an auction, while the offering of a WIUPK would be via priority or auction (where the
previous IUP-OP holder would have the right to match the tender offer).

Procedures for the Issuance of an IUPK-OP as a Continuation of CoW/

CCoW Operations

The procedures for the issuance of an IUPK-OP as a continuation of the operations of a

CoW/CCoW are stipulated in PerMen 7/2020 (as amended by PerMen 16/2021 and as
partially revoked by PerMen 10/2023).

Based on PerMen 7/2020, a holder of a metal or minerals CoW can request the conversion
of the CoW into an IUPK-OP prior to the expiration of the CoW. An application for the
conversion of a CoW to an IUPK-OP must be submitted to the MoEMR, through the
DGoMC, with the following documents attached:
• Area maps and coordinate borders, according to the provisions of the applicable rules
and regulations;
• Proof of the full payment of any fixed fees and production fees; and
• A Work Plan and Budget (“RKAB”).

Mining in Indonesia: Investment, Taxation and Regulatory Guide 53

 Photo source: PT Aneka Tambang Tbk

The DGoMC, on behalf of the MoEMR, shall evaluate any applications submitted by the
holders of metal minerals CoWs, and the MoEMR shall issue the IUPK-OP based on the
results of an evaluation performed by the DGoMC.

The IUPK-OP shall be issued for a period of time in accordance with the remaining validity
period for the metal and minerals CoW, and may be extended twice, for two periods of
ten years each. The holder of the IUPK-OP has rights and obligations according to the
provisions of the applicable rules and regulations.

Under PerMen 7/2020, all approvals issued by the Central Government and the Regional
Government shall remain valid so long as they comply with the prevailing laws and
regulations.

The implementing guidelines for the application, evaluation, and approval of IUPK-OPs
resulting from the conversion of metal or minerals CoWs are stipulated in MoEMR Decree
No. 1796 K/30/MEM/2018 (“KepMen 1796/2018”).

The DGoMC, on behalf of the MoEMR, shall evaluate applications submitted by the holders
of metal or minerals CoWs. Based on the DGoMC’s evaluation, the MoEMR may approve
or reject the application for an IUPK-OP as a continuation of the operation of a CoW/CCoW
up to two months prior to the expiration of the CoW or CCoW, at the latest.

The issue of an IUPK-OP as a continuation of the operation of a CoW/CCoW is considered

as:
• The first extension of an IUPK-OP, in the case of an application submitted by the
holders of a CoW or a CCoW who have not previously obtained an extension; or
• The second extension of an IUPK-OP for an application submitted by the holders of a
CoW or a CCoW who have previously obtained an extension of such CoW or CCoW.

54 PwC
An IUPK-OP as a continuation of the operation of a CoW/CCoW is issued for a period of
ten years. The first extended IUPK-OP may be extended for another ten years, based on
the provisions of the applicable rules and regulations. An IUPK-OP as a continuation of the
operation of a CoW/CCoW is subject to rights and obligations according to the provisions
of the applicable laws and regulations.

PerMen 7/2020 provides that the MoEMR may stipulate other provisions for the holder of
an IUPK-OP, as a continuation of the operations of a CoW or a CCoW, in order to guarantee
the effectiveness of the implementation of mineral and coal mining business activities and
to ensure a conducive business climate, by taking into account:
• The scale of the investment;
• The operational characteristics;
• The volume of production; and/or
• The environmental carrying capacity.

For an IUPK as a continuation of the operations of a CoW or a CCoW, the Amendment

to the Mining Law regulates that a CoW/CCoW is guaranteed to be extended in the form
of an IUPK as a Continuation of the Operation of a CoW/CCoW by taking into account
increments in the state revenue through the rearrangement of tax and non-tax state
revenue, as well as by ensuring the mining area according to the development plan for all
contract areas approved by the MoEMR. The period of an extension granted for a CoW or
CCoW under the Amendment to the Mining Law is ten years; however, for a CoW/CCoW
that has not previously been extended, up to two extensions may be granted, each for a
maximum of ten years.

An application for the IUPK as a Continuation of the Operations of a CoW/CCoW shall be

submitted at the earliest five years and at the latest one year prior to the expiration of the
CoW or CCoW. This provides a longer period for extension applications by CoW or CCoW
holders to by the MoEMR. Applications will be evaluated by considering the continuation
of the applicant’s operations, the optimisation of the potential of mineral or coal reserves
as well as the national interest. The MoEMR has a right to reject the application if the
evaluation results do not indicate good performance.

Rights, Obligations and Prohibitions of Holders of Mining Business

Licences

The rights, obligations, and prohibitions applicable to each type of IUP holder are stipulated
in PerMen 7/2020. There are extensive lists of rights, obligations and prohibitions of holder
of mining business licences in PerMen 70/2020. Some examples of these rights, obligations
and prohibitions are explained in the table below.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 55

Table 3.6 Rights, Obligations and Prohibitions of Holders of Mining Business Licences
Holders of Rights Obligations Prohibitions
IUPs and • To conduct mining • To conduct all mining • Selling the mining
IUPKs business activities at business activities in products abroad,
a WIUP or a WIUPK accordance with the before processing
in accordance with provisions of the applicable and/or refining the
the provisions of the legislation; products domestically
applicable laws and • To prepare and submit the in accordance with the
regulations; RKAB as a guideline for the provisions of the laws
• To own the minerals, implementation of mining and regulations;
including associated business activities to the • Selling mining products
minerals or coal MoEMR; that have not been
produced, after fulfilling • To prioritise the fulfilment of produced by its own
the production dues, domestic coal and mineral mining concessions;
except for radioactive needs, and to adhere to the • Performing blending
minerals; applicable controls over activities for coal
• To build facilities and/or production and sales; originating from the
infrastructure to support • To prepare and obtain holders of an IUP-OP,
the mining business approval for reclamation IUPK-OP or an IPR,
activities; and post-mining plans and without approval from
• To sell minerals or coal, introduce reclamation and the DGoMC or the
including selling overseas post-mining guarantees; Governors in accordance
after the fulfilment of • To increase the added with their level of
domestic needs, and to value of mineral or coal authority;
sell minerals or coal that mining products in the • Processing and/or
have been excavated country, in accordance refining of the mining
during exploration with the provisions of products, without having
activities or feasibility the relevant laws and the IUP, IPR, or IUPK;
study activities, in regulations; • Engaging subsidiaries
accordance with the • To prepare, implement, and/or affiliates as
provisions of the and submit reports on mining service providers,
legislation; the implementation of the without receiving
• To obtain rights to the community development approval from the
land, in accordance with and empowerment DGoMC on behalf of the
the provisions of the programmes; MoEMR;
legislation; • To submit all the data • Having an IPR, an
• To use foreign workers obtained from the activities IUP-OP Specifically
in accordance with of the exploration and for Processing and/
the approval of the production operations or Refining*), an IUP-
agencies that administer to the MoEMR or the OP Specifically for
manpower matters, Governor; Transportation and
in accordance with • To prioritise the utilisation Sales, and an IUJP;
the provisions of the of local Indonesian • Pledging the IUP/
applicable legislation; manpower, goods, and IUPK and/or mining
• To make any changes to services, in accordance commodities to other
investment and financing with the provisions of the parties;
sources, including the legislation; • Performing any
charging of paid-up • For PMA IUP and IUPK general inspection
capital, and placing them holders, to divest shares or exploration, or
in accordance with the to Indonesian participants, conducting a feasibility
approval of the RKAB. in accordance with the study, before the RKAB
provisions of the legislation; for the Exploration IUP
• To pay financial obligations, has been approved.
in accordance with the
laws and regulations.

56 PwC
 Holders of Rights Obligations Prohibitions
IUPs and • To apply to the Minister • To obtain approval • Performing any
IUPKs or Governor, depending from the MoEMR or the construction, mining,
(continued) on the applicable level Governor for any changes processing and/or
of authority, for an IUP to the shareholders and refining activities, or any
or IUPK in order to the Boards of Directors/ transportation and sales
search for other mining Commissioners; activities, including
commodities in the • To pay adequate advanced exploration,
WIUP or WIUPK area, by compensation to before the RKAB for the
forming a new business communities, directly IUP-OP is approved;
entity in accordance with negatively impacted by • Performing mining
the applicable legislation; any errors in the conduct business activities in
• To build transport of the mining business areas that are prohibited
facilities, storage/ activities; by the legislation;
stockpiling facilities, and • (Pursuant to the • Transferring the IUP
to purchase and use Amendment to Mining or IUPK to other party
explosives in accordance Law) to construct or without prior approval
with the approval of the cooperate with other from the MoEMR;
RKAB; and IUP/IUPK holders who • Transferring shares,
• To propose a request construct mining roads or such that the BUMN and
to use the area outside other parties which own BUMD ownership share
of the WIUP or WIUPK roads that may be utilised in a business entity that
to the MoEMR or the as mining roads; and holds an IUPK becomes
Governor to support • (Pursuant to the less than 51% for IUPKs
mining activities. Amendment to the obtained through the
Mining Law) to provide a granting of WIUPK with
mineral and coal reserves priority given to BUMN;
resistance budget for the and
mining of coal or mineral • To encumber the IUP/
reserves. IUPK, including its
commodities, in favour
of another party.

Photo source: PT Agincourt Resources

Mining in Indonesia: Investment, Taxation and Regulatory Guide 57

 Holders of Rights Obligations Prohibitions
IUP-OP • To process and/or refine • To prepare and submit the • Undertaking the
Specifically mining commodities from RKAB to the MoEMR or the processing and/
for Processing the holders of: Governor, in order to obtain or refining of mining
and/or 1. IUP-OPs; the necessary approval; products that do not
Refining* 2. IUPK-OPs; • To obtain approval for the originate from the
3. IUP-OPs Specifically use of foreign workers, holders of:
for Processing and/or from the agencies that 1. IUP-OPs;
Refining; administer affairs in the 2. IUPK-OPs;
4. IPRs; field of manpower; 3. IUP-OPs Specifically
5. IUP-OPs Specifically • To obtain approval for any for Processing and/
for Transportation and changes in investment or Refining;
Sales; and financing sources, 4. IPRs;
6. CoWs; and including changes to the 5. IUP-OPs Specifically
7. CCoWs. paid-up capital and issued for Transportation
• To enter into cooperative capital in accordance with and Sales;
agreements with other the RKAB approval; 6. CoWs; or
parties for the utilisation • To comply with any 7. CCoWs
of the residual and/ restrictions on processing • Holding an IUP, IPR,
or by-products of the and/or refining in order IUPK, or IUJP; and
processing and/or to make overseas sales • Transferring the
refining of domestic in accordance with the IUP-OP specifically
industrial raw materials; provisions of the applicable for Processing and/
• To mix mining legislation; or Refining to another
commodity products in • To comply with the party.
order to meet the buyer’s benchmark prices for
specifications; and mineral or coal sales,
• To utilise public facilities in accordance with the
and/or infrastructure provisions of the applicable
to support its business legislation;
activities, in accordance • To prioritise the fulfilment of
with the provisions of the domestic mineral and coal
applicable legislation. needs;
• To prepare, implement,
and submit reports on the
implementation of any
community development
and empowerment
programmes;
• To prioritise the utilisation
of local manpower, goods,
and services in the country;
and
• To obtain approval from the
MoEMR or the Governor
for any changes to the
shareholders.

58 PwC
 Holders of Rights Obligations Prohibitions
IUP-OP • To buy, transport, and • To submit copies of sales • Performing any
Specifically for sell the mineral and coal plan documents every time transportation or sales
Transportation mining commodities they carry out the addition activities relating to
and Sales from and to IUP holders of cooperation periodically any minerals or coal
(i.e. the holders of through the information commodities that did
IUP-OP, IUPK-OP, system; not originate from the
IUP-OP Specifically • To comply with legislation areas of IUP holders
for Processing and/ or in the field of traffic and (i.e. the holders of
Refining, IPR, CoW, road traffic, if the holder an IUP-OP, IUPK-OP,
CCoW, and other holders uses public road facilities, IUP-OP Specifically
of IUP-OPs Specifically which includes complying for Processing and/
for Transportation and with the load capacity level or Refining, IPR,
Sales); and requirements adjusted by CoW, CCoW, and
• To construct and/ the class of the road, the any other holders of
or use transportation traffic on the roads, and IUP-OPs (Specifically
and sales facilities the traffic accident risks; for Transportation and
and infrastructure, • To file a periodic report on Sales);
including stockpiles, its business operations • Performing any
ports, or special ports, with the MoEMR or the transportation or sales
in accordance with Governor every three activities relating to
the provisions of the months, or whenever any mineral or coal
applicable legislation. necessary; commodities between
• To submit periodic provinces and/or states
activity implementation for the holder of an
reports through the IUP-OP Specifically
Sales Verification Module for Transportation and
periodically; and Sales issued by the
• To file a report on the Governor;
Verification Results • Purchasing minerals or
issued by the surveyor coal commodities in the
on a monthly basis to the mine mouth;
MoEMR or the Governor, • Transferring the IUP to
no later than ten days after another party; and
the end of the month. • Holding an IUP, IPR,
IUPK, IUJP or IUP-
OP Specifically for
Processing and/or
Refining.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 59

 Holders of Rights Obligations Prohibitions
IUJPs • To perform activities in • To prioritise the use of • Holding an IUP,
accordance with the local products; IPR, IUPK, IUP-
scope of the business; • To prioritise the use of OP Specifically for
• To change the scope of local subcontractors Processing and/or
the business activities pursuant to their Refining, or an IUP-
by filing a request for a competencies; OP Specifically for
change to the MoEMR or • To prioritise the use of Transportation and
the Governor; and local workers; Sales; and
• To obtain an extension of • To perform activities in • Performing activities
the IUJP once all of the accordance with the scope that are not in
requirements have been of the business activities; accordance with the
fulfilled. • To perform environmental IUJP.
management measures
in accordance with the
provisions of the laws and
regulations;
• To optimise the use
of either local mining
equipment or local
services that are required
during the course of the
provision of services and
performance of business
activities;
• To perform the mining
safety requirements
in accordance with
the provisions of the
applicable laws and
regulations;
• To prepare and submit
a report of the activities
to the MoEMR or the
Governor according to the
holder’s level of authority
and through a holder of the
IUP/IUPK, in accordance
with the provisions of
the applicable laws and
regulations;
• To appoint the person in
charge of operations as
the supreme leader in the
field; and
• To have competent mining
technical personnel
in accordance with
the provisions of the
applicable laws and
regulations.

*) It should be noted that an existing IUP-OP Specifically for Processing and/or Refining licences issued
before the enactment of the Amendment to the Mining Law shall be converted into an industrial business
licence issued based on the laws and regulations applicable to the industrial sector within one year of the
Law coming into force.

60 PwC
Prohibition Against Receiving Fees from a Mining Services Company

An IUP/IUPK holder is prohibited from receiving any fees from a mining services company.
This provision appears to have been introduced to eliminate practices whereby the
mining licence owner assigns all of its mining operations to a third party, then receives
compensation based on a share of the profits or of the coal/minerals produced.

One Mining Licence per Company

A key feature of the Mining Law is that a privately held company can only hold one licence
(i.e. one IUP/IUPK), and that only companies listed on the IDX and companies that have
been granted non-metal mineral and/or rock WIUPs are entitled to hold more than one
licence.

Pursuant to the Amendment to the Mining Law, an IUP holder may hold more than one IUP
and/or IUPK. However, this provision is only applicable for IUPs and/or IUPKs
owned by a BUMN or for non-metal minerals or rock IUPs. It should be noted that GR
96/2021, as amended by GR 25/2024, stipulates that mining licences held by a company
listed on the IDX holding more than one IUP prior to the enactment of the Amendment to
the Mining Law shall remain valid until their expiry dates, and extensions may be granted in
accordance with the provisions set out in GR 96/2021, as amended by GR 25/2024.

Adjustment of Licence Areas

One of the key aspects of GR 96/2021, as amended by GR 25/2024, is that the size of an
Exploration IUP may be reduced based on an application submitted by the IUP and IUPK
holders to the MoEMR, or based on an evaluation by the MoEMR. Previously, under
GR 23/2010, the size of an Exploration IUP for coal and metal minerals had to be reduced
as set out below:

Table 3.7 Adjustments of to Licence Areas

Reduction after three years of
Exploration IUP Area Production IUP
exploration (under GR 23/2010)
Coal Must be reduced to a maximum
5,000 ha - 50,000 ha Max 15,000 ha
of 25,000 ha
Metal minerals 5,000 ha - 100,000 Must be reduced to a maximum
Max 25,000 ha
ha of 50,000 ha
Non-metal
100 ha - 25,000 ha 12,500 ha (applies after 2 years) Max 5,000 ha
minerals
Rocks 5 ha - 5,000 ha 2,500 ha (applies after 1 year) Max 1,000 ha

Reduction after three years of

Exploration IUPK Production IUPK
exploration (under GR 23/2010)
Coal Must be reduced to a maximum
Max 50,000 ha Max 15,000 ha
of 25,000 ha
Metal minerals Must be reduced to a maximum
Max 100,000 ha Max 25,000 ha
of 50,000 ha

Mining in Indonesia: Investment, Taxation and Regulatory Guide 61

Pursuant to the Amendment to the Mining Law, an Exploration WIUP no longer requires
any minimum area to be granted to the licence holder. The Amendment to the Mining Law
also stipulates that the size of an individual WIUPK for the Operation Production of metal,
minerals or coal shall be granted based on the MoEMR’s evaluation of the development
plans for all of the areas proposed by the IUPK holder(s).

Regarding reductions in mining areas, GR 25/2023 provides that the MoEMR shall conduct
evaluations of reduced or returned WIUPs. Based on the results of such evaluations, the
WIUPs can be re-determined by the MoEMR as WUPs, WPRs, WUPKs, and/or WPNs.

Additionally, it is worth noting that GR 96/2021, as amended by GR 25/2024, stipulates

that metal minerals or coal IUP-OP and IUPK-OP holders may apply to the MoEMR to
expand their WIUPs and WIUPKs for the purposes of mineral and coal conservation. Such
expansions must fulfil the following criteria:

a. The total area of the WIUP or WIUPK resulting from the expansion shall be as follows:
1. A maximum of 25,000 hectares (“ha”) for a metal mineral WIUP;
2. A maximum of 15,000 ha for a coal WIUP;
3. In accordance with the MoEMR’s evaluation for a WIUPK;
b. The expanded areas are close to the initial WIUP or WIUPK; and
c. The expanded areas have sustainability potential for the minerals or coal.

MoEMR Decree No. 375.K/MB.01/MEM.B.2023 on Guidance for the Application, Evaluation

and Processing of WIUP and WIUPK Areas Expansion for the Conservation of Mineral and
Coal (“KepMen 375/2023”) has been issued further to regulate applications to expand
the WIUPs and WIUPKs. Pursuant to KepMen 375/2023, IUP or IUPK holders must
obtain approval for their WIUP or WIUPK Expansion Workplans from the DGoMC prior to
submitting the application for expansion approval.

An IUP or IUPK is issued for a particular type of mineral or coal. If other minerals are
discovered in the licence area, the relevant government authority would need to issue
further IUPs or IUPKs for those other minerals. The holder of an Exploration IUP will
be given priority to acquire a licence to mine the additional mineral(s), before the relevant
government authority grants a mining licence to another investor. Pursuant to Article 40
paragraphs (2) and (3) of the Amendment to the Mining Law, an IUP holder may be granted
another IUP and/or IUPK, subject to the provision that the holder is a BUMN or the IUP is
for non-metal minerals and/or rocks.

Transfer Restrictions

a. Transfers of Licences

The Amendment to the Mining Law addresses this issue through Article 93, which
allows the holders of IUP and IUPK licences to transfer licences to other parties with
the approval of the MoEMR. Under GR 96/2021 as amended by GR 25/2024, such
MoEMR approval will be granted if the following requirements are satisfied:
(i) The holder of the licence has completed the exploration activities, as evidenced by
data on the relevant resources and reserves;
(ii) In compliance with all administrative, technical, environmental and financial
requirements.

62 PwC
 Under GR 96/2021 as amended by GR 25/2024, parts of the WIUP/WIUPK of a
BUMN at the operation production stage can be transferred to another entity that is
at least 51% owned by a BUMN which holds an IUP/IUPK subject to approval from
the MoEMR. Note that the ownership of such BUMN in the transferee entity cannot be
diluted to less than 51%.

On 12 November 2021, the MoEMR issued MoEMR Decree No. 221.K/HK.02/

MEM.B/2021 as further guidance on IUP/IUPK and WIUP/WIUPK transfers. Based
on this decree, approval to transfer a WIUP/WIUPK partially at the stage of operation
production for a BUMN is subject to the following conditions:
(i) The transfer is intended to support the implementation of a national strategic
program, a national priority program or a coal and mineral added value project
that requires a capital investment of at least IDR 1,000,000,000,000 (one trillion
Indonesian Rupiah);
(ii) The transferred WIUP/WIUPK has resources and reserves data;
(iii) The development plan on top of the transferred WIUP/WIUPK has been approved; and
(iv) The transferee is at least 51% owned by a BUMN.

The MoEMR may also impose additional requirements that must be satisfied by the
transferor and/or transferee.

b. Transfers of Shares

The Amendment to the Mining Law addresses this issue through Article 93A, which
allows the holders of IUP and IUPK licences to transfer shares to other parties with the
approval of the MoEMR. Under GR 96/2021, as amended by GR 25/2024, such MoEMR
approval will be granted if at least the following requirements are satisfied:
(i) The holder of the licence has completed the exploration activities, as evidenced by
data on the relevant resources and their reserves; and
(ii) In compliance with all administrative, technical, environmental and financial requirements.

The Amendment to the Mining Law does not further elaborate on the types of IUPs
and IUPKs that allow the holder to transfer its shares. The Amendment to the Mining
Law further clarifies that "shares" shall mean shares that are not listed on the IDX.
This implies that transfers of shares listed on the IDX do not require approval from the
MoEMR. The holder of the IUP/IUPK must report to MoEMR if it makes a transfer of
shares by way of an Initial Public Offering (IPO) on the IDX.

The requirements regarding transfers of the shares of certain mining companies are set out in
PerMen 48/2017. Please note, however, that PerMen 48/2017 only applies to the holders of:
• IUPs issued by the MoEMR;
• IUPKs; and
• CoWs or CCoWs.

It is not clear why the scope of PerMen 48/2017 is limited to holders of the above types
of licences. No explanation for this narrow scope is provided in PerMen 48/2017.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 63

 Based on PerMen 48/2017, the transfer of shares in the above types of IUP, CoW or
CCoW must be approved by the MoEMR prior to transfer. In order to obtain approval,
an application must be submitted to the MoEMR through the DGoMC, with certain
administrative and financial requirements being met. The DGoMC shall then evaluate
the application, and based on the results of the evaluation the MoEMR will make a
decision within 14 business days of receipt of the application.

Based on MoEMR Regulation No. 10 of 2023 on the Procedures for the Drafting,
Submission and Approval of Work Plans and Funding Budgets, and the Procedures
for the Reporting of the Implementation of Mineral and Coal-Mining Business
Activities (“PerMen 10/2023”), IUP and IUPK holders are required to prepare, submit,
and obtain approval for the RKAB for the Exploration stage or the RKAB for the
Production Operation stage. Other than the RKAB, IUP and IUPK holders must also
submit periodic written reports on the implementation of their mining activities. These
two documents need to be submitted regularly to the MoEMR (through the DGoMC)
or the Governor.

Photo source: PT Vale Indonesia Tbk

64 PwC
C. Reporting of Mineral and Coal Business Activities

Pursuant to PerMen 10/2023, an RKAB for Exploration shall cover the mining business plan
for one year, while a RKAB for Production Operations shall cover the mining business plan
for three years.

The key provisions regarding RKAB submission as stipulated under PerMen 10/2023 can
be summarised as follows:

Table 3.8 The Key Provisions of RKAB

Aspects Key Provisions
The types of IUPs that • Exploration IUPs and IUPKs;
are subject to the RKAB • IUP-OPs and IUPK-OPs; and
submission and approval • IUPKs as the Continuation of the Operations of a CCoW or CoW.
The timeframe for the • RKAB for Exploration: no later than 30 calendar days from the issuance
submission of the RKAB of the IUP for the Exploration Activities phase and no earlier than 90
calendar days and no later than 45 calendar days from the end of the
calendar year for the RKAB for Exploration activities phase of the next
year, to obtain approval;
• RKAB for Production Operations: no later than 30 calendar days from
the issuance of IUP-OPs, no earlier than the date of submission of the
second quarter report in the current year, and no later than 45
calendar days before the end of the calendar year for the RKAB for
Production Operation activities phase of the next period, to obtain
approval; and
• In the event of an IUP being issued after the 45 calendar days period
before the end of the calendar year, the IUP holder must submit RKAB
to the MoEMR through DGoMC to obtain approval within the period of
no later than before the end of the calendar year for the next RKAB.
The Evaluation and Approval • On behalf of the MoEMR or the Governor, the DGoMC shall perform
Process for the RKAB an evaluation of the RKAB and issue approval for, or a response to the
RKAB;
• IUP holders may submit a correction based on the response from the
DGoMC; and
• The DGoMC shall approve or reject the revised version of the RKAB no
more than 30 business days from the date when the application is duly
received.
Amendments to the RKAB • Holders of Exploration IUPs and IUPKs, IUP-OPs, or IUPK-OPs
and Reports (Subsequent to may apply for one amendment to the RKAB in the current year. The
Obtaining application for an amendment to the RKAB must be submitted after
Approval from the MoEMR or the IUP holder has submitted its Q1 Quarterly Report, which must be
the Governor) submitted, at the latest, by 31 July of the current year;
• In the event that any force majeure event, environmental capacity
condition, or other difficulty arises, an amendment to the RKAB may be
applied for by the holders of IUP-OPs, or IUPK-OPs, more than once;
and
• The evaluation and approval process for an amendment to the RKAB
follows the procedure explained in the previous point.

The Government has demonstrated its commitment to simplifying the licensing regime in
the coal and mineral sectors through the issuance of the Mining Law and the Amendment
to the Mining Law, including its implementing regulations. Going forward, the MoEMR
will optimise the use of the RKAB as a source of information to streamline the process for
obtaining licences and/or recommendations.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 65

This initiative is expected to reduce bureaucracy, shortening the time required for industry
players to obtain a particular licence/recommendation, and thus increase the attractiveness
of the mining industry for potential investors. Below are several examples of licences/
recommendations that were previously required to be obtained individually, but have now
been revoked by the Government and replaced with approvals which are now granted in
conjunction with the approval of the RKABs submitted by the IUP holders:

• Approvals for Exploration Reports; • Recommendations for Facilities for the

• Approvals for Changes to Investment Import, Re-Export, Temporary Import,
Plans and Financing Sources, including or Transfer of Goods; and
Changes to the Issued and Paid-Up • A recommendation from the DGoMC
Capital; is no longer necessary to be
• Approvals for Blending Coal from the acknowledged as a Registered Coal or
holder of the IUP-OP or IUPK-OP; Pure Lead Bar Exporter by the Ministry
• Approvals for Carrying Out Sleep of Trade (“MoT”). Instead, IUP holders
Blasting; can use their RKAB to apply directly to
• Approvals for the Operation of Dredger/ the DGoMC for this licence.
Suction Boats;
• Permits and Recommendations for
the Loading, Storage, and Usage of
Explosives;

In addition to the RKAB submission requirement, PerMen 10/2023 also requires IUP
holders to submit three additional reports: (a) a Periodic Report; (b) a Final Report; and (c) a
Special Report, with various levels of requirements, depending on the type of IUP holder, as
summarised below:

Table 3.9 Required Reports from IUP Holders

Mining
Periodic Reports Final Reports Special Reports
Licence **)
Exploration • RKAB; • Complete • Report on Early Notification of
on IUPs and • Report on Mining Water Report on Accidents;
IUPKs Waste Quality; Exploration; • Report on Early Notification of
• Statistical Report on Mining and Hazardous Incidents;
Accidents and Dangerous • Report • Report on Early Notification
Events; on the of Incidents due to Worker
• Statistical Report on Workers’ Feasibility Diseases;
Diseases; Study. • Report on Occupational
• Report on Reclamation in Diseases;
relation to the Release or • Report on Environmental Cases;
Closure of the Reclamation • Report on Mining Technical
Facility; and Review; and/or
• Internal Audit Report on the • Report on the External Audit
Implementation of the Safety on the Application of the
Management System for Mineral and Coal Mining Safety
Minerals and Coal Mining. Management System.

66 PwC
 Mining
Periodic Reports Final Reports Special Reports
Licence **)
IUP-OPs and • RKAB; • Report • Report on Early Notification of
IUPK-OPs • Report on Mining Water on the Accidents;
Waste Quality; Boundary • Report on Early Notification of
• Statistical Report on Mining Installation; Hazardous Incidents;
Injuries and Dangerous and • Report on Early Notification
Events; • Final Report of Incidents due to Worker
• Statistical Report on Workers’ on the Diseases;
Diseases; Production • Report on Occupational
• Report on Reclamation for Activities of Diseases;
the Release or Closure of the Operations. • Report on Environmental Cases;
Reclamation Facility; • Report on Mining Technical
• Internal Audit Report on the Review; and/or
Implementation of the Safety • Report on the External Audit
Management System for on the Application of the
Mineral and Coal Mining; Mineral and Coal Mining Safety
• Report on Conservation; and Management System.
• Report on the Post-Mining
Activities to close the Post-
Mining Facility.
License • Realisation Report for Mineral Not applicable. Not applicable.
for or Coal Purchases; and
Transportation • Realisation Report for Mineral
and Sales or Coal Sales.
IUJPs • Report on the Implementation Not applicable. Not applicable.
of Mining Service Business
Activities.

*) As stated previously, according to Article 169C point 3 of the Amendment to the Mining Law, an existing
IUP-OP Specifically for Processing and/or Refining issued before the enactment of this Law shall be
converted into an industrial business licence based on the laws and regulations in the industrial sector within
one year of the Law coming into force.
**) Please note that other licence holders are also required to submit periodic reports under PerMen 10/2023
(i.e. IUPK as a Continuation of the Operations of a CCoW or CoW, IPR, and SIPB).

Photo source: PT Freeport Indonesia

Mining in Indonesia: Investment, Taxation and Regulatory Guide 67

Set out below is a summary of the reporting timeframe for each of the reports mentioned in
the previous table:

Type of Report Report Submission Period

Periodic Reports • The monthly reports need to be submitted to the MoEMR (through
the DGoMC) or the Governor no later than five calendar days after
the end of a fiscal month, and 15 calendar days after the end
of a fiscal month for the Report on Mining Water Waste Quality,
specifically; and
• Quarterly reports need to be submitted to the MoEMR (through the
DGoMC) or the Governor, no later than 30 calendar days after the
end of the last month in the quarter.
Final Reports • PerMen 10/2023 has yet to set out a specific timeframe for the
submission of this type of report; and
• A MoEMR Decree will be issued setting out further guidelines for the
implementation, drafting, delivery, evaluation, and/or acceptance of
the Final Reports.
Special Reports All types of Special Report need to be submitted immediately after the
occurrence of the triggering events. For example:
• Early Notification of Accident and Early Notification of Dangerous
Events reports need to be submitted immediately after the
occurrence of the accident or incident;
• Reports on Illnesses Caused by Work need to be submitted
immediately after the diagnosis and inspection results have been
issued; and
• Reports on Environmental Incidents need to be submitted within 24
hours of the occurence of the environmental incident.

The DGoMC (on behalf of the MoEMR) or the Governor evaluates and may provide a
response to the submitted periodical reports. PerMen 10/2023 does not stipulate a
specific deadline by which the government must provide its response, but does stipulate a
maximum time frame of no more than five working days for the IUP holders to reply to the
DGoMC and/or the Governor.

Based on the Transitional Provisions of PerMen 10/2023:

• A RKAB that has been approved by the MoEMR through the DGoMC before the
enactment of PerMen 10/2023 shall remain valid as the basis for the implementation of
mining activities; and
• Application for the approval of the RKAB including its amendments that were submitted
to the MoEMR through DCoMG before the promulgation of PerMen 10/2023 shall be
processed in accordance with the provisions and mechanisms applicable before the
promulgation of PerMen 10/2023.

The implementing guidelines for the preparation, evaluation, and approval of the RKAB, as
well as the reports on minerals and coal mining business activities, are stipulated in
MoEMR Decree No. 373.K/MB.01/MEM.B/2023.

68 PwC
3.3 Controls Over the Production and Sale of Mineral and Coal
Products
Due to the non-renewable nature of coal and mineral resources, which are essential to
national development, and in order to guarantee sufficient supplies to fulfil domestic needs
for these resources, the Central Government considers it important to limit the rate of coal
and mineral production.

The MoEMR, in coordination with the relevant Government Agencies and/or Provincial
Governments, may determine the national production volume of minerals and coal in the
national interest. The MoEMR may also determine the volumes and types of minerals and
coal required to fulfil the DMO, and thus the volumes and types of minerals and coal that
can be exported.

DMO impose penalties and compensation funds,

in which the penalties derived from the
Neither PerMen 34/2009 nor PerMen loss amount of domestic coal obligation as
25/2018 set a specific DMO percentage. referred to in the approved RKAB on yearly
Rather, the decision for each particular basis. Upon issuance of KepMen 399/2023,
year is made by the MoEMR through the however, all these provisions are invalid,
issuance of a MoEMR Decree, which is including the removal of such penalties
typically issued annually. At the time of and coal specifications for the purpose of
writing DMO has only been applied to coal DMO compliance since KepMen 399/2023
for the provision of electricity for public and only requires the DMO compliance to be
personal use, and for raw materials/fuel for fulfiled only based on the realisation of coal
industry. production, without applying certain coal
specifications.
The latest annual determination is referred
to in MoEMR Decree No. 399.K/MB.01/ Under KepMen 399/2023, in the event
MEM.B/2023 (“KepMen 399/2023”), in that based on the evaluation results of the
which it amends MoEMR Decree No. 267.K/ report on the realization of the fulfillment
MB.01/ MEM.B/2022 dated 21 November of domestic coal needs does not meet
2022 concerning the “Coal Domestic Market the percentage of sales, it is subject to
Obligation” (“KepMen 267/2022”), stipulates the obligation to pay compensation funds
that the holders of Operation Production calculated using the following formula:
stage CCoWs, coal IUP-OPs and coal
IUPK-OPs, and IUPK-OPs as a continuation Compensation Funds = A x (P-R)
of the operations of a CCoW licence are
required to meet the minimum coal DMO Notes:
of 25% of the realisation of coal production A: Compensation Tariff (USD/tonne)
in the current year, with no certain coal based on coal quality and changes to the
specification is required. Reference Coal Price (HBA).
P: Obligation to sell coal for domestic needs
Previously, KepMen 267/2022 stipulated (tonnes) based on the percentage of sales
that the implementation of the determined obligations for domestic needs to the total
DMO at 25% must be carried out based realisation of coal production in the current
on the planned amount of coal production year.
set out in the approved RKAB on yearly R: Realisation of domestic coal demand
basis. Additionally, the coal specifications (tonnes).
was also required. Failure to meet these
requirements, KepMen 267/2022 may

Mining in Indonesia: Investment, Taxation and Regulatory Guide 69

Since KepMen 399/2023 only amends the quantity of the DMO yet it did not revise the
domestic price ins applicable and has retained the coal sales price for coal supply of
electricity for public use capped at USD70/mt with certain coal specifications.

Further, KepMen 399/2023 stipulates that the coal mining companies that do not fulfil their
obligation to pay compensation funds are subject to administrative sanctions in the form of
(imposed in stages):
• Prohibition to export coal for a maximum period of 30 (thirty) calendar days in the event
that the compensation funds is not paid on the due date.
• If during such 30 (thirty) calendar days the licence holder does not perform their
obligation to pay the compensation funds, the licence holders will be imposed
administrative sanction in a form of temporary suspension of all production operations
for a maximum period of 60 (sixty) calendar days.
• If during such 60 (sixty) calendar days the licence holder remains non-compliant with its
obligation to the compensation fund, the IUP/IUPK shall be revoked or CCoW shall be
terminated (as relevant).

The monitoring of the realisation of coal sales for DMO is based on the results of the
evaluation of the coal sales report submitted by the coal mining companies every month,
which is to be submitted no later than ten calendar days after the end of each month.

Coal and Minerals Price the “Procedures for Determining the

Benchmarking Adjustment Costs of the Coal Benchmark
Price” was issued to provide guidelines
PerMen 7/2017 (as most recently amended for the determination of the allowable
by PerMen 11/2020) and PerMen 25/2018 adjustment costs to the benchmark
(as most recently amended by PerMen price, for the purpose of implementing
17/2020) set out the framework authorising PerMen 17/2010, which was revoked by
the MoEMR to set the minerals and coal PerMen 25/2018. Under this regulation,
sales benchmark prices. the allowable adjustments to the
benchmark prices include transhipment,
Under PerMen 25/2018, the metal Mineral barging, surveyor and insurance costs.
Benchmark Prices (Harga Patokan Mineral Interestingly, MoEMR Decree No.
or “HPM”) and the Coal Benchmark Prices 1823 K/30/MEM/2018, concerning the
(Harga Patokan Batubara or “HPB”) are “Guidelines on the Implementation of the
determined by the MoEMR for each type Imposition, Collection, and Payment of
of metal, mineral or coal commodity. Mineral and Coal Non-Tax State Revenue”
The HPM and HPB are the floor prices as partially revoked by MoEMR Decree
for the calculation of the production fee No. 18.K/HK.02/MEM.B/2022 stipulates
(iuran produksi). The MoEMR is generally that the allowable standard adjustment
authorised to set the selling price formula to the benchmark prices only includes
for coal and metal minerals intended for transhipment and barging costs. This
certain uses; for example, in the national represents an inconsistency between
interest and for in-country value added DGoMC Regulation No. 999.K/30/DJB/2011
activities. (as amended by DGoMC Regulation No.
644.K/30/DJB/2013) and MoEMR Decree
DGoMC Regulation No. 999.K/30/DJB/2011 No. 1823 K/30/MEM/2018 with regard
(as amended by DGoMC Regulation to the allowable adjustment costs to the
No. 644.K/30/DJB/2013) concerning benchmark price.

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The benchmark prices for metal minerals may include the following commodities:
a. Nickel, in the form of nickel ore; ferronickel; mixed hydroxide precipitate; mixed
sulphide precipitate; nickel metal shots; nickel pig iron; nickel ingots; and/or nickel-
matte;
b. Cobalt, in the form of cobalt ore; cobalt concentrate; cobalt ingots; and/or cobalt
sulphide;
c. Lead, in the form of lead ore; lead concentrate; lead ingots; and/or lead bullion;
d. Zinc, in the form of zinc ore; zinc ingots; zinc concentrate; and/or zinc oxide;
e. Bauxite, in the form of bauxite ore; aluminium ingots; chemical grade alumina; and/or
smelter grade alumina;
f. Iron, in the form of iron ore; iron concentrate; iron sand; iron sand pellets; sponge iron;
and/or pig iron;
g. Gold, in the form of gold metal;
h. Silver, in the form of silver metal;
i. Tin, in the form of tin ingots;
j. Copper, in the form of copper ore; copper concentrate; and/or copper metal;
k. Manganese, in the form of manganese ore; and/or manganese concentrate;
l. Chromium, in the form of chromium ore; and/or chromium metal;
m. Titanium, in the form of ilmenite concentrate; and/or titanium concentrate; and
n. Certain other metal minerals.

The benchmark prices for metal minerals and coal are based on the benchmark price
formula, which takes certain factors into account. For metal minerals, these factors include,
but are not limited to, the value/content of the metal minerals; the Mineral Reference Price
(Harga Mineral Acuan or “HMA”); corrective factors; treatment costs and refining charges;
and/or mineral payables. The Metal HPM also applies to holders of metal or minerals IUP-
OPs who sell nickel ore to their affiliates.

The benchmark price will be updated on a monthly basis, and will be determined in
accordance with market prices (based on a basket of recognised global and Indonesian
coal indices, in the case of coal). Under PerMen 7/2017 (as most recently amended by
PerMen 11/2020), the following aspects need to be considered in the determination of the
benchmark prices for metal, minerals and coal:
a. The market mechanism, and/or the price should be in accordance with generally
applicable international market prices;
b. The increment of in-country value added to minerals or coal; and/or
c. The implementation of good mining principles.

In February 2023, the MoEMR issued MoEMR Decree No. 41.K/MB.01/MEM.B/2023

concerning the Guidelines for the Determination of Benchmark Prices for Coal Sales
(“KepMen 41/2023”), which was then revoked by MoEMR Decree No. 227.K/MB.01/
MEM.B/2023 concerning the Guidelines for the Determination of Benchmark Prices for Coal
Sales (“KepMen 227/2023”) issued in August 2023. Both regulations set out guidelines for
the determination of the benchmark prices for coal sales and stipulates the HPB formula
and the Coal Price Reference (Harga Batubara Acuan or “HBA”) formula, although the HPB
and HBA formulae are different under KepMen 41/2023 and KepMen 227/2023.

In addition, KepMen 227/2023 stipulates the reference specifications and calculations to be

used to determine:
(i) The selling price of coal for supply of electricity for public interests, and
(ii) The selling price of coal to meet domestic industrial raw materials/fuel needs other
than metal or minerals for processing and/or for the refining industry, shall refer to the
reference specifications and calculations regulated in the relevant MoEMR Decree
stipulating the selling price of coal for such purposes. KepMen 41/2023 did not
stipulate this provision.
Mining in Indonesia: Investment, Taxation and Regulatory Guide 71
Pursuant to PerMen 11/2020, the requirements relating to the verification of the quantity
and quality of minerals and coal must be implemented prior to the sale of such minerals
and coal. Furthermore, the holders of metal-mineral IUP-OPs and IUPK-OPs must appoint
a third party as an umpire (wasit) for sale and purchase contracts that are entered into with
domestic buyers, as mutually agreed with the domestic buyer.

It is important to note that any instances of non-compliance with the requirement to refer to
the benchmark prices for the sale of metal, mineral or coal commodities will be subject to
the following administrative sanctions:
1. Written warning;
2. Temporary partial or full suspension of mining activities; and/or
3. Revocation of the IUP-OP or the IUPK-OP.

Coal Price for Electricity that is Supplied in the Public Interest

On 9 September 2021, GR 96/2021 on "Implementation of Mineral and Coal Mining

Business Activities" was issued. Under GR 96/2021, the MoEMR shall determine the selling
prices of coal supplied specifically for the fulfilment of domestic needs.

Furthermore, based on PerMen 19/2018, the MoEMR shall determine the selling price of coal
to meet domestic needs based on the quality of the coal. The MoEMR considers the public
interest when determining the coal price. On 9 March 2018, KepMen 1395/2018, concerning
the “Coal Selling Prices for Electricity Supply in the Public Interest”, was issued as
an implementing regulation of PerMen 19/2018. However, on 26 December 2019, KepMen
1395/2018 was revoked by Kepmen 261/2019.

The key provisions of KepMen 261/2019 are as follows:

1. The selling price of coal for electricity supplied in the public interest is set at
USD 70/mt, Free on Board (FOB) Vessel, for coal that meets the following
specifications: calorific value of 6,322 kcal/kg Gross as Received (GAR); total moisture
of 8%; total sulphur of 0.8%; and ash content of 15%. The royalty to be paid to the
Government on coal sales is calculated by multiplying the applicable royalty tariff by
the sales volume and selling price.
2. If the coal specifications differ from those above, and the HBA for this coal is equal
to or exceeds USD 70/mt, then the selling price of coal for electricity supplied in the
public interest to be based on the formula set out in Annex of KepMen 261/2019. The
royalty to be paid to the Government on the coal sales is calculated by multiplying the
applicable royalty tariff by the sales volume and the selling price.
3. If the coal specifications differ from those set out above, and the HBA is lower than
USD 70/mt, then the selling price of the coal shall be based on the formula set out in
the Annex to KepMen 261/2019. The royalty to be paid to the Government from coal
sales is calculated by multiplying the applicable royalty tariff by the sales volume or
the selling price or the coal benchmark price, whichever is higher.
4. The coal benchmark price used to determine the selling prices of coal to be used for
the generation of electricity for supply in the public interest for spot transactions is the
coal benchmark price at the time of the transaction.
5. The coal benchmark price used to determine the selling price of coal for the
generation of electricity supplied in the public interest for a term (fixed period)
transaction is calculated based on 50% of the coal benchmark price for the month
of the contract signing, plus 30% of the coal benchmark price one month before the
contract signing, plus 20% of the coal benchmark price two months before contract
signing, and can be reviewed at the earliest every three months.
6. KepMen 261/2019 shall become effective from 1 January 2020.

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Coal Price for the Fulfilment of Domestic Industrial Raw Materials/Fuel
Needs

On 23 March 2022, MoEMR issued Ministerial Decree No. 58.K/HK.02/MEM.B/2022 (“KepMen

58/2022”) regarding the Selling Price of Coal for Fulfilling Domestic Raw Materials/Industrial
Fuel Needs, and revoked Ministerial Decree No. 206.K/HK.02/MEM.B/2021 which established
the coal sales price for domestic raw materials or fuel supply for all domestic industries (except
the metal minerals processing and/or refining industry (smelters)) of USD 90/mt FOB Vessel,
with benchmark specifications of 6,322 kcal/kg GAR, total moisture of 8%, total sulphur of
0.8% and ash of 15%. Previously, the coal price of USD 90/mt was only applicable to the
cement and fertiliser industries. KepMen 58/2022 became effective from 1 April 2022.

Coal Price Determination for Mine Mouth Power Plants

PerMen 9/2016, as amended by PerMen 24/2016 (“PerMen 9/2016”), sets out guidance
regarding the supply and pricing of coal for mine mouth power plants.

Under PerMen 9/2016, the coal price for mine mouth power plants is based on the basic
coal price plus the exploitation fee/royalty. The basic coal price is based on the agreement
between the coal mine owner and the power plant company, and is calculated based on
the production cost formula plus a margin (from 15% to 25%), and in consideration of
an escalation factor. The escalation factor is adjusted on an annual basis, based on the
changes in the USD/Rupiah exchange rate, fuel prices, the consumer price index, and the
regional minimum wage. The margin is based on the agreement between the coal mine
owner and the power plant company, within the range provided for in PerMen 9/2016. The
basic coal price must be communicated to the MoEMR. The basic coal price is valid for the
duration of the Power Purchase Agreement. Transport costs are excluded, except for the
transportation of coal from the mine to the power plant’s stockpiling facility.

Mines supplying mine mouth power plants must be listed on the Clean and Clear list, and
must have a reserve allocation and the quality of coal required by the power plant. PerMen
9/2016 also requires the mine owner to hold a minimum of 10% of the equity of the power
plant company. The distance between the mine and the power plant must be a maximum
of 20 kilometres. It should however be noted that, based on PerMen 7/2020, a Clean and
Clear certificate is no longer required.

Photo source: PT Bukit Asam Tbk

Mining in Indonesia: Investment, Taxation and Regulatory Guide 73

3.4 Mandatory In-Country Processing and Export Restrictions

Holders of coal IUPs and IUPKs are required to carry out processing in order to increase
the value added to the coal they produce, either directly or in cooperation with other
companies, IUP holders, or IUPK holders.

• “Processing” by a holder of a coal IUP-OP or a coal IUPK-OP covers the following

activities:

Coal upgrading Coal briquetting Coke making

Coal gasification, including underground coal Coal slurry/coal water

Coal liquefaction
gasification mixture

• “Processing” by a holder of a coal Processing IUP-OP covers the following activities:

Coal blending Coal upgrading Coal briquetting Coke making

Coal slurry/coal water

Coal liquefaction Coal gasification
mixture

The holders of mineral IUPs and IUPKs are required to carry out in-country processing
and refining to increase the value added to the minerals they produce, either directly or
in cooperation with other companies, IUP holders, or IUPK holders. PerMen 25/2018
specifically sets out the requirements for in-country mineral processing and refining.

Minerals for which the added value can be increased in this way include:
• Metal minerals;
• Non-metal minerals; and
• Rocks.

Processing covers activities that improve the quality of the minerals or rocks, without
changing their physical and chemical properties, such as conversion into metal mineral
concentrates or polished rocks. Refining is defined as covering any activities that improve
the quality of metal minerals, through an extraction process or by increasing the purity of
the mineral, to produce a product with different physical and chemical properties from the
original, such as metals and alloys.

Increases in the value added to minerals shall be achieved through the following activities:
• Processing and refining of metal minerals;
• Processing of non-metal minerals; and
• Processing of rocks.

Holders of an IUP-OP, IUPK-OP, or of a Processing and Refining IUP are required to meet
minimum in-country processing and refining requirements for various types of metal
minerals, non-metal minerals, certain rocks, as well as the by-products and residues from
the refining of metal mineral mining commodities (in the form of copper, tin, lead, and zinc),
and the by-products or residues from the refining of lead concentrates in slag form.

74 PwC
These specific minimum in-country processing and refining requirements are detailed in
Attachments I to IV of PerMen 25/2018 (see Appendix A of this Guide for the minimum in-
country processing and refining requirements for metal minerals prior to export).

The requirement to meet the minimum in-country processing and refining standards, as
outlined in PerMen 25/2018, does not apply if the products are used directly in the national
interest or if the minerals are exported for research and development purposes. This
exemption is subject to a recommendation from the DGoMC on behalf of the MoEMR and
requires Export 39 approval from the DGoFT.

Following the end of the COVID-19 pandemic, the MoEMR issued Decree No. 89.K/
MB.01/MEM.B/2023 regarding Guidance on the Imposition of Administrative Penalties
for Delays to the Construction of Metal Mineral Domestic Smelter Facilities (“KepMen
89/2023”). Pursuant to KepMen 89/2023, the holders of IUP-OPs or IUPK-OPs that export
certain types of metal minerals must meet a certain percentage of physical progress on
the construction of refining facilities of not less than 90% every six months, based on the
report on the results of the verification of physical progress issued by an independent
verifier. If this requirement is not fulfilled, such IUP-OP or IUPK-OP holders must pay an
administrative fine of 20% of the cumulative value of metal mineral exports for each delay
period, based on a certain calculation formula stated under KepMen 89/2023.

Administrative fines are applicable to the holders of IUP-OPs or IUPK-OPs for metal
minerals who experienced delays in the construction of refinery facilities during the period
from October 2019 to June 2023. KepMen 89/2023 revoked MoEMR Decree No. 154.K/30/
MEM/2019 regarding Guidance on the Imposition of Administrative Penalties for Delays in
the Construction of Smelter Facilities (“KepMen 154/2019”). However, it should be noted
that under KepMen 89/2023, holders of IUP-OP or IUPK-OP who have yet to fulfill their
obligations under KepMen 154/2019 are still required to provide security deposits as a
guarantee for smelter construction projects.

In May 2024, the MoEMR issued PerMen 6/2024, which annulled the previous PerMen
7/2023. The latter governed the ongoing construction of domestic metal-mineral processing
facilities by holders of IUP and IUPK for copper, iron, lead, and zinc. Under the new
regulation, IUP/IUPK holders who meet specific criteria are permitted to export their
semi-processed mining product until 31 December 2024, on the condition that they are
constructing the smelter either themselves or as part of a partnership and have started the
commissioning process. This new regulation effectively extends the former export deadline
from 31 May 2024 to the end of the year.

Processing and refining can be conducted in cooperation with other IUP and IUPK holders,
as well as the holders of Processing and/or Refining IUPs. This cooperation may take the
form of:
a. Sales and purchases of ore/concentrates; or
b. Processing and/or refining activities.

The cooperation plans must be submitted to the MoEMR, for the attention of the DGoMC
(or the Governor), for approval. A holder of an IUP-OP or IUPK-OP that supplies ores,
concentrates, or intermediate mineral products to other processing and/or refining
parties must submit its sales plans to the MoEMR, for the attention of the DGoMC (or the
Governor).

Mining in Indonesia: Investment, Taxation and Regulatory Guide 75

Following the enactment of the Amendment to the Mining Law which no longer requires an
IUP-OP Specifically for Processing and/or Refining, such cooperation on processing and
refining activities may be conducted by IUP-OP or IUPK-OP holders with another party who
holds the licence required under the industrial sector.

Pursuant to Article 104 of the Amendment to the Mining Law, IUP-OP and IUPK-OP holders may
conduct independent processing and/or refining activities integrated with or in cooperation with:
a. Other holders of IUPs or IUPKs in the stage of Production Operation activities who
own integrated processing and/or refining facilities; or
b. Other parties who conduct processing and/or refining business activities that are not
integrated with mining activities with licenses issued based on the provisions of the
laws and regulations in the industrial sector.

Furthermore, the Amendment to the Mining Law stipulates that coal development and/or
utilisation may be conducted in cooperation with other holders of IUPs and IUPKs in the
stage of Operation Production activities or other parties who conduct coal development
and/or utilisation activities. Development and/or utilisation includes activities carried out to
increase the quality of coal without changing the physical or chemical characteristics of the
coal. Coal development and/or utilisation shall be carried out to increase the added value of
the coal.

Investment Considerations for Building In-Country Refining Facilities

In the event that a mining company intends to build a smelter in Indonesia, some key
considerations for investors considering investments in processing/refining facilities and
associated infrastructure are as follow:
a. Whether it is more favourable to hold the processing/refining facilities and
infrastructure within the company holding the IUP-OP (i.e. the mining company) or
under a separate company holding an industrial business licence;
b. If a separate company is to be established, the most beneficial arrangement with the
mining company, whether trading or a processing service arrangement;
c. Whether any tax facilities are available, such as income tax holiday (including the potential
impact of Global Minimum Tax under Pillar Two rules) or import facilities;
d. The relevant tax considerations in relation to the Engineering, Procurement, and
Construction (EPC) contract;
e. How financing can be arranged in the most tax-efficient manner; and
f. The right model for cooperation between shareholders (mining companies, off takers,
financial investors, domestic, foreign, etc.).

PwC Indonesia recommends that investors contact our specialist mining team should they
require further advice. Please see Appendix F for the contact details of PwC Indonesia’s
mining specialists.

Relaxation of the Ban on Exports of Unprocessed Minerals

In an attempt to alleviate the impact on miners and the country’s export revenue of the ban
on exports of unprocessed or insufficiently processed minerals, the Government issued
PerMen 25/2018, which allowed mining companies to continue exporting semi-processed
products and certain types of ores up to 11 January 2022.

76 PwC
Following the payment of export duties based on the relevant laws and regulations, and
the fulfilment of the minimum domestic processing and refining requirements, and having
obtained an Export Approval from the DGoFT and an Export Recommendation from
the MoEMR, the holders of metal or mineral IUP-OPs, metal or mineral IUPK-OPs, and
processing and/or refining licences for anode mud were allowed to export certain approved
quantities of their semi-processed products until 10 June 2023.

Based on PerMen 25/2018, there are specific rules applicable to metal minerals with
particular criteria (i.e. nickel with a content of < 1.7% and washed bauxite with an
Aluminium Oxide content of ≥ 42%). The holders of IUP-OPs, IUPK-OPs, or IUP-OPs
Specifically for Processing and/or Refining licences, as well as other parties that are
engaged in metal mineral processing and/or refining, are required to utilise metal minerals
with particular criteria produced from domestic mining to meet domestic utilisation goals,
by:
a. Processing and refining metal minerals with particular criteria in their own processing
and/or refinery facilities;
b. Supplying metal minerals using particular criteria for processing and/or refining
facilities built by other holders of IUP-OPs, IUPK-OPs, IUP-OPs Specifically for
Processing and/or Refining licences, and other parties engaged in metal mineral
processing and/ or refining; or
c. Receiving a supply of metal minerals with particular criteria from other holders of IUP-
OPs, IUPK-OPs, IUP-OPs Specifically for Processing and/or Refining licences, and
other parties that are engaged in metal minerals processing and/or refining.

The holders of IUP-OPs, IUPK-OPs, or IUP-OPs Specifically for Processing and/or Refining
licences were allowed to export certain approved quantities of product that did not meet
the mineral content requirements, including nickel with a content of < 1.7% and washed
bauxite with an Aluminium Oxide content of ≥ 42% until 11 January 2021, provided they
had constructed or were in the process of constructing a refining/smelting facility, either
individually or jointly with other parties, and had paid export duties under the relevant laws
and regulations.

However, due to concern around the depletion of the country’s nickel reserves, in August
2019 the Government of Indonesia announced its decision to accelerate a full ban on
exports of low-grade nickel ore by two years compared to the initial schedule. This was
then followed with the issuance of PerMen 11/2019, the second amendment to PerMen
25/2018, by the MoEMR, which effectively prohibited nickel mining companies in Indonesia
from exporting unprocessed nickel ore from 1 January 2020.

In November 2020, the Government introduced a further relaxation through the issuance
of PerMen 17/2020, the third amendment to PerMen 25/2018. Based on PerMen 17/2020,
the holders of an IUP-OPs/IUPK-OPs for metal minerals were allowed to continue exporting
semi-processed products and certain types of ores (excluding nickel ore) until 10 June
2023, subject to the conditions set out in the implementing regulations. The holders of
existing processing and/or refining licences were allowed to export products at a certain
amount up until the expiry date of its export licence (which pursuant to GR 96/2021 as
amended by GR 25/2024, would have been 10 June 2023 at the latest).

Mining in Indonesia: Investment, Taxation and Regulatory Guide 77

The above export relaxation under PerMen 17/2020 was stipulated following the issuance
of the Amendment to the Mining Law under which unprocessed metal minerals (at a certain
level and with a total volume of processed metal minerals) may continue to be exported for
three years from the enactment of the Amendment to the Mining Law (i.e. until June 2023)
for mining companies which have conducted processing and refining activities (and/or are
constructing facilities and/or are cooperating on processing and refining activities).

Later in May 2024, the MoEMR issued PerMen 6/2024, which revokes the previous
regulation (PerMen 7/2023) by providing a further relaxation of the export ban (Pursuant
to PerMen 6/2024, certain IUP/IUPK holders, subject to fulfilling the requirements
thereunder, may export their semi-processed mining product (copper, iron, lead, zinc) until
31 December 2024 to encourage the completion of smelter construction. PerMen 6/2024
came into effect from 1 June 2024.

In order to conduct exports, such IUP/IUPK holders must obtain export approval from
the DGoFT and a recommendation from the MoEMR. As set out in PerMen 25/2018, in
order to obtain a recommendation, mining companies must apply to the MoEMR for the
recommendation, for the attention of the DGoMC.

The DGoMC shall evaluate the application for an export recommendation and, based on
this evaluation, the DGoMC, on behalf of the MoEMR, will approve or reject the application
within 14 working days of receiving the application. The implementing guidelines for the
application, evaluation, and approval of recommendations for export are stipulated under
MoEMR Decree No. 1826 K/30/MEM/2018.

The DGoMC, on behalf of the MoEMR, shall supervise the implementation of mineral export
sales and shall monitor the progress of the development of the refinery facilities (including
the physical progress of the refinery facilities and the value of the development costs
incurred to build the refinery facilities).

The physical progress of the development of the refinery facilities must reach at least 90%
of the approved plan for any given month, cumulatively calculated up to the last month by
an Independent Verifier.

In the event that, based on a six-monthly review, the percentage of physical progress of
the development of the refinery facilities does not reach 90%, the DGoMC, on behalf of
the MoEMR, shall issue a recommendation to the DGoFT to revoke the previously granted
export approval.

Other than the revocation of the recommendation for export approval, the holders of metal
or minerals IUP-OPs, IUPK-OPs, and IUP-OPs Specifically for Processing and/or Refining
may be subject to administrative fines amounting to 20% of the cumulative value of their
mineral export sales.

If the administrative fine is not paid within one month of imposition, the holders of metal or
minerals IUP-OP, IUPK-OP, and IUP-OP Specifically for Processing and/or Refining licences
may be subject to further administrative sanctions in the form of the temporary suspensions
of some or all of their business activities, for at most 60 days, by the MoEMR or the
Governor, as applicable.

78 PwC
Photo source: PT Musi Prima Coal

PMK 38/2024 sets out the rates of export duty for the various forms of processed metal
minerals. Under PMK 38/2024, the export duty rates are calculated based on the following:
• In the event that the Export Duty Rate is determined based on a set percentage of the
Export Price (advalorem), the Export Duty is calculated based on the following
formula: Export Duty Rate x Number of Units of Goods x Export Price per Unit of
Goods x Currency Exchange Rate; and
• In the event that the Export Duty Rate is specifically determined, the Export Duty is
calculated based on the following formula: Export Duty Rate per Unit of Goods in a
Specific Currency Unit x Number of Units of Goods x Currency Exchange Rate.

Note that, in accordance with the new approach set out in PMK 38/2024, the Export Price
is determined by the Customs and Excise Directorate General c.q. the Minister of Finance
in accordance with the Export Benchmark Price.

Use of National Sea Transportation and Insurance for Coal Exports

The requirement to use Indonesian sea transportation and insurance for coal exports is
set out in PerMenDag 40/2020 (as amended by PerMenDag 65/2020) on “Provisions for
the Use of Sea Transportation and National Insurance for Exports and Imports of Certain
Goods” and DGoFT Regulation No. 2/DAGLU/PER/1/2019 concerning “Technical Guidance
on Implementing the Requirement for the Use of National Insurance for Exports and Imports
of Certain Goods” (“DGoFT Reg. 02/2019”).

Based on PerMenDag 40/2020, coal exporters are principally required to use domestic sea
transportation companies, and to obtain insurance from domestic insurance companies
or from a consortium of domestic insurance companies. The obligation to utilise domestic
sea transportation companies and domestic insurance applies to coal exporters that
transport coal with a capacity of up to 10,000 (ten thousand) deadweight tonnage using
sea transportation. Domestic sea transportation companies are defined as marine
transportation companies incorporated in Indonesia and that carry out sea transportation
activities within the territorial waters of Indonesia and/or to and from ports abroad.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 79

Under DGoFT Reg. 02/2019, insurance is defined as an agreement between two parties,
namely an insurance company and a policyholder, that serves as the basis for the receipt of
premiums by an insurance company in return for:
a. Providing compensation to the insured party or policyholder due to losses, damages,
costs incurred, loss of profits, or legal responsibility to third parties that may be
experienced by the insured party or policyholder due to the occurrence of an
uncertain event; or
b. Providing payment upon the death of the insured party or a payment based on the
life of the insured party with a benefit at an amount established and/or based on the
results of fund management.

National (domestic) insurance companies are defined as any general insurance company or
Sharia general company incorporated in Indonesia that has already secured a licence from
the FSA/OJK. The type of insurance must be for marine cargo insurance, and the insurance
company or consortium of insurance companies issuing such insurance must be registered
with the Ministry of Trade (MOT).

Under PerMenDag 40/2020, coal exporters are also required to submit a report on the use
of sea transportation and national insurance to the DGoFT via Inatrade, an integrated online
platform hosted by the MoT ([Link] This report must include the
scanned copy of the Exporter/Importer’s tax invoice and at least the following:
(i) The name of the domestic sea transportation company;
(ii) The company's identification number from the International Maritime Organisation;
(iii) The name of the domestic insurance company or government-owned export financing
institution; and
(iv) The number and the policy date or on the insurance certificate.

Exporters and importers who fail to comply with the mandatory use of domestic sea
transportation companies and domestic insurance companies and the related reporting
obligations will be subject to an administrative sanction in the form of a recommendation to
suspend their NIB.

Obligation to Deposit Foreign Exchange Export Proceeds of Mining

Products

Previously, under PerMenDag 94/2018 (as amended by PerMenDag 102/2018), exports

of coal and minerals must use an L/C. In December 2023, the MOT issued PerMenDag
33/2023 which revoked PerMendag 94/2018 based on the consideration that the
government has issued Government Regulation No. 36 of 2023 on Foreign Exchange
Export Proceeds from Business, Management, and/or the Processing of Natural Resources
(“GR 36/2023”), which provides more comprehensive provisions on the use of natural
resources export proceeds, including mining products. GR 36/2023 stipulates that export
proceeds are utilised by exporters for the payment of export duties and other levies in
the fields of exports, loans, imports, profits/dividends, and/or for other capital investment
purposes.

To implement GR 36/2023, the Central Bank of Indonesia and the MoF issued the following
regulations which further regulate the requirements relating to DHE SDA:
a. Central Bank of Indonesia Regulation No. 7 of 2023 regarding Foreign Exchange on
Exports and Foreign Exchange on Import Payments (“BI Regulation 7/2023”);

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b. Decree of the Minister of Finance No. 272 of 2023 regarding the Stipulation of Types of
Natural Resource Export Goods subject to an Obligation to Deposit Foreign Exchange
Export Proceeds into the Indonesian Financial System (“MoF Decree 272”);
c. Regulation of Minister of Finance No. 73 of 2023 regarding the Imposition and
Revocation of Administrative Sanctions for Violation of Provisions on Foreign Exchange
Export Proceeds from Business, Management and/or Processing Activities of Natural
Resources (“PMK 73/2023”); and
d. Regulation of the Members of the Board of Governors of the Central Bank of Indonesia
No. 4 of 2023 regarding Foreign Exchange Proceeds from Export and Import Payments
as amended by Regulation of the Members of the Board of Governors of the Central
Bank of Indonesia No. 6 of 2024 (“PADG 4/2023”).

Pursuant to GR 36/2023, in conjunction with BI Regulation 7/2023, exporters of natural

resources (Sumber Daya Alam or “SDA”) must deposit or place their DHE SDA into
a special account opened at (i) the Indonesian Export Financing Agency (Lembaga
Pembiayaan Ekspor Indonesia or “LPEI”), and/or (ii) banks conducting activities in foreign
currency (a “DHE SDA Special Account”).

The obligation to deposit or place DHE SDA in a DHE SDA Special Account is applicable to
SDA exporters based on the following criteria:
a. Having a DHE SDA with an export value of at least USD 250,000 (or equivalent) stated in
its Export Customs Notice (Pemberitahuan Pabean Ekspor or “PPE”); and/or
b. Exporters of commodities in the mining, plantation, forestry, and fishery sectors of the
types stipulated in MoF Decree 272.[1]

Administrative sanctions, in the form of the suspension of export services/facilities, will be

imposed on exporters of natural resources for non-compliance with the following
obligations:
• Failure to deposit DHE SDA in special accounts;
• Failure to deposit DHE SDA of at least 30% of their export proceeds or for less than
three months; and/or
• Failure to create an escrow account with, or transfer an overseas escrow account to LPEI
and/or certain banks conducting activities in foreign exchange.

Monitoring and supervision of compliance with these regulations will be carried out by
the Financial Services Authority (OJK) and BI. PMK 73/2023 stipulates that OJK and/or BI
may revoke the administrative sanction imposed on an exporter upon the fulfilment of the
outstanding obligations by the exporter.

The requirement for exporters to deposit at least 30% of their DHE SDA for a minimum
of three months may give rise to concerns for the exporters (including Indonesian mining
companies) in managing their cash flow. Further monitoring on the developments related
to the proposed extension of the DHE SDA period will take place. At the time of writing,
Government Regulation No. 36 of 2023 remains in effect.

GR 36/2023, in conjunction with BI Regulation 7/2023, further stipulates that exporters with
an export value of less than USD 250,000 (or equivalent) may deposit or place its DHE SDA
into the DHE SDA Special Account on a voluntary basis. For such exporters, the DHE SDA
Special Account shall be opened at a foreign exchange banks.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 81

Additionally, GR 36/2023 also provides that the depositing or placement of DHE SDA is not
required for the following:
a. Exports not conducted for the purpose of carrying out business activities listed in the
provisions of the laws and regulations in the trade sector, in which there is no foreign
exchange traffic; or
b. Trade compensation (imbal dagang) in the form of barter in accordance with the
provisions of the applicable laws and regulations.

Furthermore, at least 30% of the DHE SDA must continue to be held in one of the following
financial instruments for at least 3 months after being deposited:
• A special account opened at the Indonesian Export Financing Agency ("LPEI") or at a
foreign exchange bank;
• Banking instruments, e.g. foreign exchange time deposits;
• Financial instruments issued by LPEI, i.e. promissory notes in foreign exchange; and/or
• Financial instruments issued by BI, i.e. conventional open market term deposits in foreign
exchange with BI.

Pursuant to BI Regulation 7/2023, DHE SDAs invested and/or placed in the banking
and financial instruments mentioned above have several benefits for exporters. Funds
deposited into a DHE SDA Special Account could be used for forex swap transactions
between the exporters and banks, or used by the exporters as security for loans
(denominated in Rupiah). They also can be used by banks as underlying transactions for
hedging swap transactions between banks and the BI. Furthermore, according to GR
36/2023, DHE SDAs deposited and/or placed in the DHE SDA Special Account can be
used by exporters for the payment of export duty and other levies in the export sector,
loans, imports, profits/dividends, and/or for other investment needs (i.e. the ransfer of DHE
SDAs to another party). The use of DHE SDAs deposited and/or placed in the DHE SDA
Special Account must take into account the requirement to deposit and/or place at least
30% of the DHE SDA in the DHE SDA Special Account for at least three months.

3.5 Royalties and the Fiscal Regime

Royalties and Non-Tax State Revenue

All IUP/IUPK holders are required to pay production royalties at varying rates, depending
on the mining scale, the production level, and the mining commodity price. GR 26/2022
imposes a significantly higher royalty rate compared to the previous regulation (i.e. GR
81/2019) and came into effect from 15 September 2022. Currently, under GR 26/2022,
different percentages of the sales proceeds apply to different types of coal and minerals
(please refer to below table summarising the GR 26/2022 rates for each commodity).

However, specifically for coal, Article 39 of the Job Creation Law adds Article 128A to the
Mining Law, which stipulates that business owners who conduct activities to add value
to the coal shall be eligible for certain state income incentives. Such incentives may be
in the form of the imposition of a 0% royalty rate. GR 25/2021 has been issued as an
implementing regulation of the Job Creation Law, which stipulates that the incentive is
granted by taking into account the energy independence and the fulfilment of demand for
industrial materials. Prior approval of the amount, requirements, and procedures for the 0%
royalty rate must be obtained from the MoF.

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As contemplated by the 2009 Mining Law, the holders of an IUPK are required to pay an
additional levy (or “profit share”) of 10% of the net profits. Based on GR 15/2022, the
Central Government is entitled to receive 40% of this additional levy, while the remaining is
to be shared between the relevant provinces and regencies. Since this additional charge is
determined based on the net profit, it is expected that the Government will take a greater
interest in monitoring the capital expenditure and mining operating costs of IUPKs.

The current production royalty rates for key Indonesian commodities are set out in the
table below. For the rates applicable under a CoW/CCoW, reference should be made to the
relevant agreement (see Chapter 3 and Appendix E for further details of the CoW terms).

Table 3.11 Production Royalty Rates for Key Indonesian Commodities

IUP Royalty Rates
Commodity Production Royalty Rate
Coal
a) Open pit coal
• HBA < USD 70 5% - 9.5%
• USD 70 < HBA < USD 90 6% - 11.5%
• HBA >= USD 90 8% - 13.5%
b) Open pit coal
• HBA < USD 70 4% - 8.5%
• USD 70 < HBA < USD 90 5% - 10.5%
• HBA >= USD 90 7% - 12.5%
Nickel 1% - 10%
Zinc 2% - 4%
Tin 1% - 4%
Copper 2% - 10%
Iron 2% - 10%
Gold
• Price <= USD 1,300/ounces 3.75%
• USD 1,300/ounces < Price <= USD 1,400/ounces 4%
• USD 1,400/ounces < Price <= USD 1,500/ounces 4.25%
• USD 1,500/ounces < Price <= USD 1,600/ounces 4.50%
• USD 1,600/ounces < Price <= USD 1,700/ounces 4.75%
• USD 1,700/ounces < Price <= USD 1,800/ounces 5%
• USD 1,800/ounces < Price <= USD 1,900/ounces 6%
• USD 1,900/ounces < Price <= USD 2,000/ounces 8%
• Price > USD 2,000/ounces 10%
Silver 3.25%
Iron Sand 2% - 10%
Bauxite 1 % - 7%

Note: The Job Creation Law, through GR 25/2021, allows for a 0% royalty rate for coal business
owners who conduct activities to add value to the coal.

Guidance on the imposition, collection, and payment of royalties is set out in MoEMR
Decree No. 1823 K/30/MEM/2018 concerning the “Guidelines on the Imposition, Collection,
and Payment of Mineral and Coal Non-Tax State Revenue”, as partially revoked by MoEMR
Decree No. 18.K/HK.02/MEM.B/2022 (“KepMen 18/2022”). Pursuant to KepMen 18/2022,
the payment of dead rent and royalty fees shall be made through the electronic system
of non-tax state revenue or e-PNBP and can only be processed after the taxpayer is
registered with the DGoMC.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 83

On 11 April 2022, the Government issued GR 15/2022 to provide special rules on both
the tax and royalty arrangements for the coal mining sector. GR 15/2022 introduces a
new royalty per tonne on coal sales by holders of an IUPK as a continuation of a CCoW.
The royalty is calculated based on a certain formula at progressive rates according
to fluctuations in the coal benchmark price. This calculation involves multiplying the
progressive rate by the sales price, and the result is deducted with the royalty and the fee
for the utilisation of Government-owned assets ex CCoW.

The royalty progressive rates under GR 15/2022 are as follows:

Table 3.12 Royalty Progressive Rates

Royalty Rates
Coal benchmark price IUPK Continuation with IUPK Continuation without
lex-specialis provisions1 lex-specialis provisions2
<USD 70 14% 20%
USD 70 up to < USD 80 17% 21%
USD 80 up to < USD 90 23% 22%
USD 90 up to < USD 100 25% 24%
> USD 100 28% 27%

1) An IUPK Continuations with lex specialis provisions is an IUPK Continuation of a CCoW where the tax
provisions are nailed down.
2) An IUPK Continuation without lex specialis provisions is an IUPK Continuation of CCoW where the tax
provisions follow the prevailing tax regulations.

For coal sales for which the price is specifically regulated (specific coal sales), the PNBP
rate is fixed at 14%. The specific coal sales refer to sales:
• Within one island in accordance with the provisions under the Mining Law;
• Of certain coal types (i.e. fine coal, reject coal, coal with certain impurities) and needs,
as stipulated in the provisions of the Mining Law;
• To fulfil domestic needs where the coal price or formula is determined by the MoEMR;
and
• For certain transactions as stipulated in the provisions of the Mining Law.

Fiscal Regime

There are no specific articles outlining the details of the tax or other fiscal provisions in the
Mining Law. However, the Government issued GR 37/2018, concerning “The Treatment of
Taxation and/or Non-Tax State Revenue in the Mineral Mining Business” in August 2018,
setting out special rules on both tax and PNBP arrangements for the mineral mining sector.
In April 2022, the Government issued GR 15/2022 setting out special rules on both tax and
PNBP arrangements for the coal mining sector.

Please refer to Chapter 5 for further details regarding GR 37/2018 and GR 15/2022 and
mining-specific taxation matters.

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3.6 Divestments of Foreign Shareholdings

Under GR 96/2021, the maximum shareholding a foreign investor can hold in a company
that holds an IUP/IUPK depends on the relevant mining activities carried out by the mining
company and whether it has integrated processing and/or refining facilities. The share
divestment requirements stipulated under GR 96/2021, are as follows:

Table 3.13 Share Divestment Requirements

Divestment Share Obligation
Operation Production IUP and Integrated Processing
(applicable from the production
IUPK and/or Refining Facilities
stage)
10th year: 5%
11th year: 10%
12th year: 15%
Surface mining No
13th year: 20%
14th year: 30%
15th year: 51%
15th year: 5%
16th year: 10%
17th year: 15%
Surface mining Yes
18th year: 20%
19th year: 30%
20th year: 51%
15th year: 5%
16th year: 10%
17th year: 15%
Underground mining No
18th year: 20%
19th year: 30%
20th year: 51%
20th year: 5%
21st year: 10%
22nd year: 15%
Underground mining Yes
23rd year: 20%
24th year: 30%
25th year: 51%

Under GR 96/2021, the holders of an IUP or IUPK whose foreign shares are above 49% may
transfer such shares to other parties before the stipulated year set out in the table above,
provided that such foreign shares are first offered to a BUMN.

In addition to the restrictions above, PerMen 9/2017 (as most recently amended by PerMen
43/2018) stipulates the following:
• Holders of an IUP-OP or IUPK-OP licence for which shares must be divested are
prohibited from providing loans to Indonesian parties for the purpose of acquiring
the divestment shares. This provision is likely to be intended to prevent foreign
shareholders from maintaining control through nominee arrangements;
• Holders of an IUP-OP or IUPK-OP licence are prohibited from pledging shares that are
obliged to be divested; and
• In terms of the issuance of new share capital that dilutes the Indonesian shareholder’s
ownership percentage, the entities holding IUP-OP and IUPK-OP licences should in the
first instance offer the new shares to the existing Indonesian shareholder, or to other
Indonesian participants (the Central Government, the Provincial Government, a BUMN,
a BUMD, or a domestic private business entity), if the existing Indonesian shareholder
does not opt to exercise these rights.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 85

The divestment procedures, including the timeline, the divestment price, the approval
processes, and the payment mechanism should follow the requirements of PerMen 9/2017
(as amended by PerMen 43/2018). On 8 April 2020, the MoEMR issued MoEMR Decree
No. 84 K/32/MEM/2020, which stipulates the detailed requirements for the divestment.

Divestments are to be made (in order of preference) to the Central Government, the Provincial
Government, Regency/Municipal Government, a BUMN or BUMD, or a domestic private
business entity (referred to collectively as the “Indonesian Participants’’). Divestment may be
conducted through the issuance of new shares and/or the transfer or sale of existing shares,
either directly or indirectly.

The Central Government, through the MoEMR, must provide a written response to the
divestment offering no later than 30 calendar days after the expiration of the period for the
evaluation and negotiation of the divestment share price.

If the Central Government is not interested, or does not provide a written response to the
divestment offering within the required timeline, the next divestment offering is to be made
(in order of preference) to the Provincial Government or Regency/Municipal Government,
a BUMN or BUMD, or a domestic private business entity. The Provincial Government or
Regency/Municipal Government must be the Provincial Government or Regency/Municipal
Government where the mining business activity takes place.

The holders of IUP-OP or IUPK-OP licences must offer share divestments to the Provincial
Government or Regency/Municipal Government within a period of no more than seven
calendar days following either: (i) the Government’s confirmation that it is not interested; or
(ii) the Government not providing a written reply to the divestment offering within the required
timeline. MoEMR Decree No. 84 K/32/MEM/2020 stipulates the supporting documents
that are to be provided as part of such offerings to the Provincial Government or Regency/
Municipal Government. The Provincial Government or Regency/Municipal Government must
provide a written reply to the divestment offering no later than 30 calendar days after the date
of the offer.

In the event that the Provincial Government or Regency/Municipal Government is not

interested, or does not provide a written reply within the required timeline, PerMen 9/2017
stipulates that the holders of IUP-OPs or IUPK-OPs are required to offer share divestments
to BUMNs and BUMDs by way of a tender. Based on PerMen 43/2018, divestment offers to
BUMNs and BUMDs are no longer conducted through a tender. In the event that more than
one BUMN or BUMD expresses interest in the divestment offer, the MoEMR shall coordinate
the determination of the number of divested shares to be purchased by the BUMN or the
BUMD. The offer should be made by the BUMN or BUMD no more than seven calendar
days after the Provincial Government or Regency/Municipal Government has confirmed that
it is not interested or has not providing a written reply to the divestment offering within the
required timeline. The BUMN or BUMD must provide a written reply to the divestment offering
no more than 30 calendar days after the offer date.

In the event that a BUMN or BUMD is not interested, or does not provide a written reply
within the required timeline, the holders of IUP-OP or IUPK-OP licences are required to offer
the share divestment to domestic private business entities, through a tender, no more than
seven calendar days after the BUMN or BUMD confirming that they are not interested, or
after the deadline for providing a written reply has passed.

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Domestic private business entities must provide a written reply to the divestment offering no
more than 30 calendar days after the offer date.

During the implementation of the divestment procedure, the holders of IUP-OPs or IUPK-OPs
must grant access for Indonesian Participants to conduct due diligence procedures.

In the event that the divestment offering to Indonesian Participants is not implemented, the
share divestment can be carried out by offering the divestment shares on the IDX.

Pricing of Shares that are Subject to Divestment

PerMen 9/2017 stipulates that the divestment share price is based on the “fair market
value”, without considering the value of the mineral or coal reserves at the time when the
divestment is conducted. This pricing mechanism could be a significant concern for foreign
investors, given that it is likely to result in a price that is lower than the fair market value,
which is generally understood to include the net present value of the cash flow generated
from the exploitation of the reserves over the remaining life of the mine.

However, the above provisions regarding the divestment share price has been changed by
PerMen 43/2018. Based on PerMen 43/2018, the fair market value shall not include mineral
or coal reserves, except those that may be mined within the period of the IUP-OP or IUPK-
OP. Furthermore, the fair market value shall be calculated using the discounted cash flow
method, based on the economic benefits within the divested implementation period until
the end of the IUP-OP or IUPK-OP, and/or market data benchmarking.

Based on PerMen 9/2017, the regulated divestment share price would be:
a. The maximum price offered to the Central Government, Provincial Government or
Regency/Municipal Government; or
b. The minimum price offered to a BUMN, BUMD, or domestic private business entity.

PerMen 43/2018 amended the above provision, and stipulates that the regulated
divestment share price would now be:
a. The maximum price offered to the Central Government, Provincial Government or
Regency/Municipal Government, BUMN, BUMD, or a special purpose vehicle that has
been established or appointed by the Government through the MoEMR, together with
the Provincial Government or Regency/Municipal Government, BUMN and/or BUMD; or
b. The minimum price to be offered to a domestic private business entity through a tender.

PerMen 43/2018 states that the calculation of the fair market value may use the discounted
cash flow method and/or the market data benchmarking method. MoEMR Decree No. 84
K/32/MEM/2020 explains the use of the discounted cash flow method in greater detail,
including the financial assumptions that should be considered.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 87

The Government (via the MoEMR) may engage an independent valuer to evaluate the
divestment share price. If agreement cannot be reached regarding the divestment share
price, PerMen 9/2017 stipulates that the divested shares are to be offered based on
the divestment share price calculated with reference to the evaluation performed by the
Government. This provision has now been removed from PerMen 43/2018. However, based
on MoEMR Decree No. 84 K/32/MEM/2020, the Government can check whether the holder
of the IUP-OP or IUPK-OP has used the predetermined method and, if not, the Government
may return the offer to the holder to be revised in accordance with the predetermined
method.

Divestment via IPO

PerMen 27/2013 stated that a divestment via the Indonesian capital market will not be
treated as satisfying the divestment requirements. However, this provision was removed
following the revocation of PerMen 27/2013 by PerMen 9/2017 (as amended by PerMen
43/2018). Instead, PerMen 9/2017 stipulates that divestment can be carried out by
offering shares on the IDX in the event that none of the Central Government, the Provincial
Government or Regency/Municipal Government, a BUMN, a BUMD, or a domestic private
business entity is interested in purchasing the divested shares. This provision was also
included in GR 96/2021, as amended by GR 25/2024. This implies that divestment via the
Indonesian capital markets can be treated as satisfying the divestment requirements.

3.7 Reclamation and Mine Closure

On 20 December 2010, the Government released GR 78/2010, which deals with reclamation
and post-mining activities for both IUP-Exploration and IUP-OP holders. On 29 February
2014, the MoEMR issued PerMen 7/2014 (the implementing regulation for GR 78/2010),
which details the requirements and guidelines for the preparation of reclamation and post-
mining plans. PerMen 7/2014 has been revoked by PerMen 26/2018, and the guidelines
regarding reclamation and mine closure are now set out in PerMen 26/2018.

An Exploration IUP/IUPK holder must include a reclamation plan in its exploration RKAB,
among other requirements, and must provide a reclamation guarantee in the form of a time
deposit placed at a state-owned bank. The reclamation plan for the exploration phase
needs to be prepared before any exploration activities are undertaken. After an application
for an IUP-OP has been submitted, the reclamation plan for the production phase and the
post-mining plan must also be prepared by the IUP/IUPK holder, covering a five-year period
(or the remainder of the mine life, if shorter).

On 21 May 2024, MoEMR Decree No. 1827 K/30/MEM/2018 concerning Guidelines for
the Implementation of Good Mining Techniques (“KepMen 1827/2018”) was partially
revoked by MoEMR Decree No. 111.K/MB.01/MEM.B/2024 concerning the "Guidelines for
Application, Evaluation and Approval for Reopening of Areas of Reclamation in Mineral and
Coal Mining Business Activities" as one of the implementing guidelines for the provisions
under PerMen 26/2018 (“KepMen 111/2024”), specifically in Appendix VI of KepMen
1827/2018 related to the reopening of reclamation areas.

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Based on PerMen 26/2018 and KepMen 1827/2018, an IUP-OP/IUPK-OP holder must
provide the following, among other requirements:
• A five-year reclamation plan;
• A post-mining plan;
• A reclamation guarantee, which may be in the form of: (i) a joint account, a time
deposit placed at a state-owned bank in IDR or USD for a reclamation guarantee at
the exploration stage; and/or (ii) a time deposit placed at a state-owned bank in IDR or
USD for a reclamation guarantee at the operation production stage;
• A post-mining guarantee, in the form of a time deposit with a state-owned bank in IDR
or USD; and
• Filling a periodical report on the implementation of reclamation and post-mining
activities.

The requirement to provide reclamation and post-mining guarantees does not release the
IUP holder from the requirement to perform reclamation and post-mining activities. PerMen
26/2018 and KepMen 1827/2018 also set out the procedures for the preparation of the
reclamation and post-mining activities report, which must be submitted to the MoEMR
periodically. Reclamation and post-mining activities will be evaluated for the release of the
reclamation guarantee and the post-mining guarantee. In the event that the reclamation and
post-mining criteria are not met, the MoEMR or governor shall appoint a third party to carry
out reclamation or post-mining activities.

Please refer to the Annex to KepMen 1827/2018 for the detailed requirements and
procedures of the reclamation plan, post-mining plan, placement and release of guarantees,
and the associated reporting obligations.

The transitional provisions in GR 78/2010 and PerMen 26/2018 make it clear that CoW/
CCoW holders are also required to comply with this regulation.

Aside from the above, pursuant to the Amendment to the Mining Law, prior to the WIUP or
WIUPK area being reduced or returned, reclamation and mine closure activities must be
implemented, and must reach 100% completion. Ex-holders of IUP or IUPK licences that
have expired must achieve 100% completion of reclamation and mine closure activities.

3.8 Penalty Provisions and Dispute Resolution

Penalty Provisions

The Mining Law also regulates the consequences of infringement of the Law by the IUP/
IUPK holder and illegal miners.

A breach of the Mining Law can be punished by both administrative and criminal sanctions,
including the revocation of the IUP/IUPK, the imposition of fines, and prison terms. The
Job Creation Law includes a minor additional provision whereby anyone who hinders or
interferes with the mining business activities of IUP, IUPK, IPR or SIPB holders will be
included as a subject of sanctions for causing a nuisance to mining activities.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 89

Dispute resolution

Disputes regarding IUPs/IUPKs should be settled through court procedures and domestic
arbitration, in accordance with the prevailing laws and regulations.

3.9 Transitional Provisions

CoWs/CCoWs/Coal Co-Operation Agreements (“CCAs”)

The 2020 Amendment to the Mining Law confirms that all existing CoWs/CCoWs/CCAs
(collectively referred to hereafter as the “contract(s)”) will continue until their expiry dates,
and may be extended without the need for a new tender (where further extensions are still
available under the contracts).

However, such extended licences will be granted under the IUPK system, rather than under
the CoW framework. If a licence has been extended once, the second extension will also be
granted without the need for a tender. Before issuing the IUPK, the MoEMR should already
have issued its approval for the relevant mine area as a WIUPK OP. Failure to fulfil these
requirements may result in the mine area being reopened for tender.

Detailed guidance on applications for extensions of IUPK-OPs is outlined in GR 96/2021

(as amended by GR 25/2024) and PerMen 7/2020 (as amended by PerMen 16/2021 and
partially revoked by PerMen 10/2023).

Although the terms of existing contracts will be honoured, the Law specifically provides that
holders of existing contracts must, within five years of the enactment of the Law, comply
with the obligation under the Law to conduct onshore processing and ore refining.

Contract holders who have already commenced some form of activity are required, within
one year of the enactment of the Mining Law, to submit a mining activity plan for the entire
contract area. If this requirement is not fulfilled, the contract area may be reduced to the
permitted size for IUPs under the new Law.

Furthermore, the Mining Law indicates that the provisions of existing contracts must
be amended within one year to conform to the provisions of the new Mining Law, other
than the terms relating to state revenue (which is not defined, but presumably includes
State Tax Revenue and PNBP, such as royalties). The Mining Law does not state which
provisions the existing contracts must conform to, but this could include alignment with the
Mining Law’s provisions on divestment obligations, the resizing of mining areas, reduced
production periods, prohibitions on using affiliated mining contractors, and the like. Many
of these matters were raised by the Government during the contract renegotiations with the
holders of the contracts. At the time of writing, all CCoW holders and substantially all CoW
holders have completed the negotiation process and signed amended contracts with the
Government.

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 Photo source: PT Vale Indonesia Tbk

Mining in Indonesia: Investment, Taxation and Regulatory Guide 91

 Contracts of
4 work
4.1 General Overview and Commercial Terms

CoW

The CoW system for regulating mining operations has played a key
role in the success of Indonesia’s mining industry. This system, which
was introduced in 1967, has been gradually refined and modernised
over the past 40 years to reflect changing conditions both in Indonesia
and abroad. To date, there have been seven generations of CoWs. A
comparison of the various generations is provided in Appendix E.

After the 2009 Mining Law was amended by the new Mining Law,
several articles were amended, with one of the most significant
amendments being that regarding the Government guarantee for
CoW and CCoW extension. Under the Amendment to the Mining
Law, the Government created a new type of licence, an “IUPK as a
continuation of CoW/CCoW operations”. This allows holders of a
CoW/CCoW to extend their mining activities for up to 20 years (in the
form of two ten-year extensions), or offers a ten-year licence if the
CoW or CCoW has previously been extended prior to the Amendment
to the Mining Law.

CoWs were previously regulated by MoEMR Decision Letter No.

1614/2004, which has been revoked by PerMen 8/2018. In essence,
a CoW is a comprehensive contract between the Government and
an Indonesian company. While this company could be 100% foreign-
owned, such company might be subject to divestment requirements
at a later date. In practice, most CoWs have some level of Indonesian
ownership.

The CoW sets out the company’s rights and obligations with
respect to all phases of mining operations, including exploration,
pre- production development, production, and mine closure. A CoW
applies to a specifically defined geographical area (the contract area).

The CoW company is the sole contractor for all of the mining activities
in the CoW area, other than for oil and gas, coal, and uranium. The
CoW company has control over, management of, and responsibility
for all of its activities, which include all aspects of mining such as
exploration, development, production, refining, processing, storage,
transport, and sales.

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 Photo source: PT Bukit Asam Tbk

Mining in Indonesia: Investment, Taxation and Regulatory Guide 93

The CoW outlines a series of stages with defined terms:
CCAs and CCoWs
Table 4.1 CoW Stages
CCoWs were regulated
Term
Stage
(Years)
Available Extension1 under MoEMR Decision
Letter No. 1614/2004.
General survey 1 1 6 months – 1 year Since November 1997, coal
mining has been brought
Exploration 2 3 1 – 2 years more into line with general
mining through the CoW
Feasibility study 1 1 year
structure. There have been
Construction 3 - two generations of CCA
20 years or another (first generation and second
Production 30 period as approved by the generation contracts) and
Government one generation of CCoW,
Notes: which is typically referred to
1) Dependent on the CoW generation. For details, refer to Appendix E. as a third generation CCoW.
2) For the first generation, the maximum period from the general survey
to the feasibility study was 18 months, which could be extended by a
maximum of 6 months. The first generation of
CCAs was regulated under
Some of the important considerations covered by a Presidential Decree No.
CoW include: expenditure obligations; import and 49/1981, dated 28 October
export facilities; marketing; fiscal obligations; reporting 1981, regarding the Principal
requirements; records; inspections; work programmes; Regulation for CCAs signed
employment and training of Indonesian nationals; between PT Tambang
preference to be given to Indonesian suppliers; Batubara Bukit Asam (now
environmental management and protection issues; PT Bukit Asam Tbk or
regional cooperation in relation to infrastructure; provision “PTBA”), the state-owned
of infrastructure for the use of the local population; coal mining company, and
and local business development. It is a tribute to the the contractor. Presidential
Government and to the industry that these important Decree No. 49/1981 was
matters are able to be appropriately addressed in a replaced by Presidential
concise legal contract. Decree No. 21/1993, dated
27 February 1993, which
The CoW covers all tax, royalty, and other fiscal charges, regulated the second
including: dead rent in the contract area; production generation of CCAs. The
royalties; income tax payable by the company; third generation of CCoWs
employees’ personal income tax; withholding taxes were issued pursuant
(WHT) on dividends, interest, rents, royalties, and similar to Presidential Decree
payments; VAT; stamp duty; import duty; and Land and No. 75/1996, dated 25
Building Tax (Pajak Bumi dan Bangunan or “PBB”). September 1996.

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CCAs CCoWs

The key difference between the CCA Under CCoWs, the mining company
and CoW systems is that, under a CCA, is, in effect, entitled to 100% of the
the foreign mining company acted as a coal production. However, a royalty of
contractor to the Indonesian state-owned 13.5% of the sales revenue is paid to the
coal mining company PTBA. However, Government.
further legislation has since been enacted,
and CCAs have been amended to transfer CCAs and CCoWs outline a series of
the rights and obligations of PTBA under the stages with defined terms:
CCAs to the Government, represented by
the MoEMR. Table 4.2 CCAs and CCoWs Stages
Term Available Extension
Under a CCA, the coal contractor is Stage
(Years) (Years)
entitled to an 86.5% share of the coal
produced from the mining area, and the
General survey 1 1 year
contractor bears all of the costs of mine
exploration, development, and production.
The Government (previously PTBA) retains 2 years for the
its entitlement to the remaining 13.5% of third generation,
Exploration 3 but not specifically
production. However, in accordance with
mentioned in other
Presidential Decree No. 75/1996, dated 25 generations
September 1996, the contractors pay the
Government’s share of the production in
cash, which represents 13.5% of sales after 1 year for the third
generation, but
the deduction of the selling expenses. Feasibility study 1 not specifically
mentioned in other
Under the first generation of CCAs, generations
equipment purchased by the coal contractor
became the property of the Indonesian Construction 3 -
Government (previously PTBA), although
the contractor had the exclusive right
Production 30 -
to use the assets and was entitled to
claim depreciation. For the second and
third generations of CCA and CCoW, the
equipment purchased by the contractor
remains the property of the contractor. Pre-Contract Expenses

Foreign shareholders that own 100% The shareholder of the contract company
of a first generation CCA are required typically incurs significant expenditure
to offer shares to Indonesian nationals before the contract company is
or companies so that, after ten years of incorporated and the contract is signed.
operating, foreign ownership in the This pre-incorporation expenditure may
company is reduced to a maximum of 49%. be transferred from the shareholder to the
contract company in the form of deferred
pre-operating costs, and will be amortised
starting from the period in which production
commences. These expenses are subject
to an audit by a public accountant and
approval by the Minister and the Directorate
General of Taxation (DGT).

Mining in Indonesia: Investment, Taxation and Regulatory Guide 95

Exploration and Development

These stages coincide with the decision points regarding reductions in the contract area.
This section deals with the general survey, exploration, feasibility, and construction stages.

Following the signing of the contract, the company is required to lodge a security deposit,
in USD, in a state-owned bank account. The security deposit is released in two tranches,
following:
• The satisfactory completion of the General Survey period (50% of security deposit
amount); and
• The submission of a general geological map to the Ministry within 12 months of the
completion of the Exploration Stage (50% of security deposit amount).

For the seventh generation of CoWs, or the third generation of CCoWs, the security deposit
is released in three tranches, following:
• The satisfactory completion of the General Survey period (25% of security deposit
amount);
• The end of the first year of exploration (25% of security deposit amount); and
• The submission of a general geological map within 12 months of the completion of the
Exploration Stage (50% of security deposit amount).

During the pre-production stage, all of the companies signing the contract are required
to submit detailed quarterly progress reports to the MoEMR. Under the contracts, these
companies have responsibility for all the financing requirements of the project, and details
are to be reported to the MoEMR.

Obligations are imposed throughout the life of the contract with respect to environmental
restoration, the employment and training of Indonesian nationals, preference for Indonesian
nationals, preference for Indonesian suppliers, the provision of infrastructure for use by the
local community, as well as the following obligations:

Table 4.3 CoW and CCA/CCoW Obligations

CoW CCA/CCoW

• General Survey Stage • General Survey Stage

The company is obliged to spend an The company is obliged to spend an

agreed amount during the General Survey agreed amount during the General Survey
stage. At the end of the period, the stage. At the end of the period, the
company must submit a report detailing company must submit a report detailing
the expenditure items and amounts, and is the expenditure items and amounts, and
required to relinquish at least 25% of the it is required to relinquish at least 25% of
original contract area. the original contract area for the second
and third generation contracts, and 40%
for first generation.

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 CoW CCA/CCoW

• Exploration Stage • Exploration Stage

During the Exploration Stage, the company During the Exploration Stage, the company
is obliged to spend an agreed amount is obliged to spend an agreed amount
per year on exploration activities. At the per year on exploration activities. At the
commencement of this stage, the company commencement of this stage, the company
must submit an annual programme and must submit an annual programme and
budget to the MoEMR. budget to the MoEMR.

At the end of the Exploration Stage, the At the end of the Exploration Stage, the
company is required to file the following company is required to file the following
with the MoEMR: with the MoEMR:
- A summary of its geological and - A copy of the drill holes, pits, and
metallurgical investigations and all the assays of the samples; and
data obtained; and - A copy of the geophysical or geological
- A general geological map of the contract maps of the contract area.
area.

On or before the second anniversary of the On or before the second anniversary of

commencement of the Exploration Stage, the commencement of the Exploration
the company is required to have reduced Stage, a third-generation company is
the contract area to not more than 50% of required to reduce the contract area to not
the size of the original contract area. more than 25% of the size of the original
contract area. First and second generation
contractors are required to reduce the
contract area to not more than 20%.
• Feasibility Study Stage • Feasibility Study Stage

At the end of the Feasibility Study Stage, At the end of the Feasibility Study Stage,
the company is required to submit a the company is required to submit a
feasibility study, including environmental feasibility study, including environmental
impact studies, to the MoEMR, and to impact studies, to the MoEMR, and to
design the facilities. design the facilities.

At the end of the Feasibility Study stage, At the end of the Feasibility Study, the third
the company is required to have reduced generation CCoW companies are required
the contract area to not more than 25% of to reduce the contract area to not more
the size of the original contract area. than 25,000 ha.
• Construction Stage • Construction Stage

The company undertakes the construction The company undertakes the construction
of the facilities. of the facilities.
• Dead Rent • Dead Rent

Throughout the life of the CoW, the Throughout the life of the contract, the
company is required to pay dead rent. This company is required to pay dead rent. This
is an annual amount that is based on the is an annual amount that is based on the
number of hectares in the CoW area and number of hectares in the approved area
the stage of the CoW. and the stage of mining.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 97

Production

During the production phase, the company is required to submit the following Exploitation
reports to the MoEMR:
• A fortnightly statistical report;
• A monthly statistical report;
• A quarterly report concerning the progress of operations;
• An annual report; and
• Other reports to various departments.

The company may export its production, but is encouraged to meet domestic demand first.
Sales to associates are required to be at arm’s length prices. Sales contracts with terms
exceeding three years are subject to Government approval.

The contract also requires contractors to submit the following reports to the MoEMR:
• A monthly statistical report;
• A quarterly report concerning the progress of operations; and
• An annual report, for the third generation of CCoWs.

The contract company may choose to operate the mine itself, or to sub-contract the
operations of the mine, but the outsourcing of mining operations should now be considered
in light of the rules set out in the Mining Law and its implementing regulations, which may
be applicable to contracts.

Because a company can be party to only one contract (either a CoW, CCA, or CCoW), it is
common for mining groups to own more than one company in Indonesia. Group overheads
can be borne by yet another company, which has been formed to service the group
contract companies. This type of arrangement can offer operational efficiencies, but its tax
implications should be considered further.

Other Financial Obligations

Royalties

Royalties are payable quarterly to the Government based on the actual volume of
production or sales, according to the provisions set out in the contract. However, in practice
the royalty is currently to be paid to the Government prior to shipment.

Dead Rent and PBB

The company is required to pay dead rent and PBB as set out in the contract. Dead rent
is an annual charge based on the number of hectares in the mining area. During the pre-
production stage, the PBB is equal to the amount of dead rent. Once the operating stage
commences, the PBB for the mining area is equal to the amount of dead rent plus a certain
percentage of gross revenue from mining operations. The PBB for the area outside the
mining area used by the company for its facilities, but which will be closed to the public, will
be calculated based on the method outlined in the relevant contract.

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4.2 The Fiscal Regime Under CoWs, CCoWs, and CCAs

All generations of contracts, except for second generation CCAs, are based on the
taxation and other laws and regulations that were in place at the time of the agreements
being signed. In many circumstances, this means that the regulations affecting the mining
companies operating under such contracts differ from the current regulations. This
often creates difficulties with interpreting the agreements and doing business with other
companies. Potential investors in mining properties covered by earlier generation contracts
should seek professional advice regarding these issues.

Many earlier generation contracts also include divestment requirements for foreign
shareholders.

Please note that contract renegotiations (see Section 4.5 of this Guide, “CoW and CCoW
renegotiations” and Section 5.3 of this Guide, “Tax Regime for a CoW/CCoW/CCA
Company”, below) generally require the adoption of the prevailing fiscal rules effective from
1 January 2019. Nevertheless, the fiscal regime for each contract should be reviewed on a
case-by-case basis.

4.3 Termination of the Contract

If at any time during the term of a contract the company believes that the contract area is
unworkable, it may terminate the contract. The procedures for terminating contracts
can be summarised as follows (this matter is not specifically mentioned in first and second
generation CCoWs):
• Submit a written notice to terminate the contract, attaching a closure plan, related
documents, maps, plans, worksheets, and other technical data and information.
• Provided that the data provided and the company’s fulfilment of its other obligations
are considered acceptable to the MoEMR, the MoEMR will issue confirmation within six
months of the date when the company submitted the notice. Otherwise, the contract
is automatically considered to be terminated, and the company shall be relieved of its
obligations.

A general summary of the implications of the termination of a contract, at the various

stages of the contract, is set out below. All sales, removals, or disposals of property will be
subject to the tax rules set out in the respective contract:

a. General Survey and Exploration Period

• The company has a period of six months to sell or remove its property, before it
becomes the property of the Government; and
• The company is required to provide any information that has been gained through
the work that it has performed to the Department of Mines and Energy.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 99

 b. Feasibility Study Period

• The company is required to offer all of the property located in the contract area to
the Government at its market value;
• The above offer shall be valid for 30 days; and
• If the Government accepts the offer, it is required to settle within 90 days, and
if the Government does not accept the offer, the company then has six months
to sell or remove its property, otherwise the property reverts to the Government
without any compensation paid to the company.

c. Construction Period

• The conditions are identical to those for the Feasibility period except that, if the
Government does not accept the offer, the company has 12 months to remove or
sell its property.

d. Operating Period or Expiration of the contract

• The company is required to offer all of its property located in the contract area to
the Government at its market value;
• The offer is valid for 30 days. If the Government accepts the offer, then it is
required to settle within 90 days; and
• If the Government does not accept the offer, the company then has 12 months
to sell or remove its property, otherwise the property reverts to the Government
without any compensation paid to the company.

Following the termination of the contract, any property that is used for public purposes,
such as roads, schools, and hospitals, and any associated equipment, immediately
becomes the property of the Government, without any compensation paid to the company.

4.4 Transfer of a Contract

The Purchase and Sale of Shares in a Contract Company

Due to the difficulties involved in transferring a direct interest in a contract (see below) it is
common for such interests to be transferred indirectly, through a transfer of shares in the
company holding the contract, or through a transfer of shares in the holding companies
above the company holding the contract.

However, the shareholders of the contract company cannot transfer any shares prior to the
commencement of the operating period without the written consent of the Government.

The shareholders in the contract company also require the prior written consent of the
MoEMR to transfer the shares of the contract company after the commencement of the
operating period. Under the terms of the contract such consent shall not be unreasonably
withheld or delayed.

Consent is not required in the case of a transfer of shares to:

• Indonesian Participants (as defined); or
• An affiliate or subsidiary of the shareholder

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The Purchase and Sale of Direct Interests in a Contract

The contract does not allow CoW/CCA/CCoW companies to

transfer or assign all or any part of their interest in the contract
without the prior written consent of the Government (which is very
unlikely to be granted). In any such transfer, the company is not
relieved of any of its obligations under the contract except to the
extent that the transferee or the assignee assumes and performs
such obligations.

Farm-Ins

Neither the contracts nor the income tax legislation specifically

address farm-ins, per se. As a commercial matter, a typical farm-in
to a minerals mining property involves the eventual transfer of an
interest in the property. Accordingly, the farm-in arrangement, and
the tax treatment thereof, must be considered by the Minister in
conjunction with the approval of the transfer. A farm-in can usually
be achieved more easily through a transfer of shares in the holding
company or offshore investing company.

4.5 CoW and CCoW Renegotiations

As discussed above, pursuant to the Mining Law of 2009 as

amended by the new Mining Law, it is intended for the terms of the
existing mining contracts (CoWs and CCoWs) to be brought into line
with the provisions of the Mining Law. Accordingly, the Government
has approached all CoW and CCoW holders in order to amend the
terms of their contracts.

The renegotiation process began in 2010 with 31 CoW and 68

CCoW holders.

Based on the MoEMR’s press releases, six strategic issues were

being negotiated and included in the contract amendments. These
issues included the size of the mining areas; the continuation of the
mining operations; the state revenue; the obligation to process and
refine minerals in Indonesia; the obligation to divest shares; and the
obligation to utilise local goods and services.

Our understanding is that most fiscal matters have been

renegotiated on a “prevailing law” basis, other than the Corporate
Income Tax (CIT) tax rate in certain cases.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 101

 Tax regimes for
5 the Indonesian
mining sector
5.1 General Overview of the Indonesian Tax System

On 2 November 2020, the Government issued Law No. 11 Year 2020

concerning Job Creation (the “Job Creation Law”), which introduced
relevant changes including the exemption of dividends from tax, the
inclusion of coal as a VAT-able product (previously exempted) and
several changes to the VAT rules that are more favourable to taxpayers.

The Government issued the following implementing regulations of the

Job Creation Law:
a. Government Regulation No. 9 Year 2021 (“GR 9/2021”) which has
been effective since 2 February 2021; and
b. MoF Regulation No. 18/PMK.03/2021 (“PMK 18/2021”) which has
been effective since 17 February 2021.

On 29 October 2021, Law No. 7 Year 2021 concerning the

Harmonisation of Tax Regulations (the "HPP Law”) was passed,
stipulating, amongst other things, that the CIT rate is to remain at
22% from 2022 onwards, that all provisions of Benefits-in-Kind (BIK)
are deductible for the provider but taxable for the employee, that a
useful life of longer than 20 years will be used for permanent buildings
and intangible assets, that there will be a further limitation on interest
deductions, that there will be an increase in the VAT rate from 10% to
11% (from 1 April 2022) and to 12% (from 1 January 2025), that certain
mining products taken directly from the source will become VAT-able,
and that a carbon tax will be introduced. The effective date of the
income tax-related provisions is 1 January 2022, whilst the provisions
related to VAT and carbon tax became effective on 1 April 2022.

PwC Indonesia publishes an annual Indonesian Pocket Tax Book which

provides a general guide to the prevailing Indonesian tax laws, which
were most recently amended by the HPP Law and its accompanying
regulations. The Indonesian Pocket Tax Book is freely available on PwC
Indonesia’s website ([Link]
english/[Link]).

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 Photo source: PT Bukit Asam Tbk

Mining in Indonesia: Investment, Taxation and Regulatory Guide 103

 5.2 The Tax Regime for an IUP, IUPK, IPR, and SIPB Company

General

The Mining Law stipulates that any IUP, IUPK, IPR, and/or SIPB is subject to the prevailing
Income Tax Law (ITL) and its accompanying regulations.

The IUP, IUPK, IPR, and SIPB company is required to register for tax and to obtain a
taxpayer identification number, called a Nomor Pokok Wajib Pajak (NPWP), and also to
register for a VAT-able Entrepreneur Identification Number (Nomor Pokok Pengusaha Kena
Pajak, “NPPKP”). Such companies are also required to register for tax with the local tax
office in the jurisdiction in which the mine operates. This includes the company meeting
its VAT obligations (if applicable and not centralised at the head office) as well as its WHT
obligations.

CIT – General

The prevailing ITL stipulates that the Government will issue Government Regulations
that cover the specific tax provisions applicable for each type of mineral and coal mining
business activity.

Minerals
The Government issued GR No. 37 Year 2018 (“GR 37/2018”), which sets out specific rules
covering both the tax and PNBP arrangements that are generally applicable from 2019
onwards for the following mineral mining “concession” holders:
a. IUPs;
b. IUPKs;
c. IPRs;
d. IUPK-OPs, being a mining business licence that is granted for this stage of the
activities (i.e. not just the actual mining, but also construction, processing and/or
refining, transportation, and sales) within a State Reserve Area. The IUPK-OPs referred
to in GR 37/2018 are limited to those relating to the conversion of an “active” CoW that
has not expired into an IUPK-OP (which is directly relevant to a number of the historical
concessions that are now being converted from CoWs); and
e. A CoW with tax provisions that follow the prevailing tax regulations (i.e. with no lex
specialis provisions).

Coal
On 11 April 2022, the Government issued GR No. 15 Year 2022 (“GR 15/2022”) which sets
out specific rules covering both the tax and PNBP arrangements that are generally applicable
from the 2023 tax year onward for the following coal mining “concession” holders:
a. IUPs;
b. IUPKs;
c. IUPKs as a continuation of CCoW Operations, being a mining business licence that is
granted for this stage of the activities (i.e. not just actual mining, but also construction,
processing and/or refining, transportation, and sales) within a State Reserve Area. The
IUPKs as a continuation of CCoW Operations are referred to in GR 15/2022 are limited
to those relating to CCoWs that have expired and been given an IUPK as a continuation
of CCoW Operations; and
d. CCoWs, with tax provisions that follow the prevailing tax regulations (i.e. with no lex
specialis provisions).

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 Minerals
CIT Rate Under GR 37/2018, the values of mineral
mining product sales are to be based on
Under the prevailing ITL, as most recently one of the following prices at the time
amended by the HPP Law, a company when the sale occurs:
is subject to CIT on its net taxable profit. a. The market price of the “metal”
The net taxable profit is calculated as mineral in question (e.g. aluminium
the gross income less the allowable as per the London Metal Exchange,
expenditure. The CIT is imposed at a rate zinc as per the Asian Metal Exchange,
of 22% on the net taxable profit for all etc.);
mineral and coal concession holders. b. The market price of the “non-metal”
mineral in question (e.g. iron and
A 3% income tax reduction is applicable steel as per the prices published on
for companies that are listed on the IDX, international or domestic commodity
subject to meeting certain requirements markets);
around trading liquidity. c. The market price of the relevant
“rock-like” material in question
However, GR 37/2018 stipulates that a (e.g. as per the prices published on
CIT rate of 25% applies to mineral IUPK- international or domestic commodity
OP holders. markets); or
d. The actual selling price (but only if
there is no market price reference).
General Expenses
Notwithstanding this, if the actual selling
Deductible expenses are expenses that price is higher than the published market
have been incurred in order to generate, price, the actual selling price should be
maintain, and collect taxable income, used. However, taxpayers can only use
and generally include amounts that have the actual selling price if the discrepancy
been paid or accrued for expenditure is within the margin of 3% of the relevant
that: (a) is attributable to the company’s published market price.
operations, and (b) has a useful life of
less than one year. Coal
Under GR 15/2022, the values of coal
The specific operating expenses mining product sales are to be determined
relating to a mining operation may at the time when the sale occurs, based
include supplies, contracted services, on the higher of:
insurance, royalties on intellectual a. the lower of the coal benchmark price
property, processing expenses, repairs (HPB) stipulated by the MoEMR or
and maintenance, etc. These should be the coal price index (e.g. Indonesia
deductible in the year in which they are Coal Index, Newcastle Export Index,
incurred. Globalcoal etc.); or
b. the actual selling price that is
Selling and general and administrative supposed to be received by the seller.
expenses are generally tax deductible in
However, if the HPB or coal price index
the year in which they are incurred.
is not available, the values are calculated
based on the actual selling price that is
intended to be received by the seller.
Income
The above approach to determining the
Gross income usually represents income from taxable value for mineral and coal miners
sales of mining products as well as any other represents a significant departure from
income that has been earned by the mining general income tax principles.
company.

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 Exploration and Stripping/Overburden Removal Costs
Development Expenses
Minerals
Exploration and development Under GR 37/2018, stripping costs that were incurred
expenses include expenses prior to the start of production operations by mineral
relating to camp construction, mining companies should be capitalised and:
drilling, access roads, project • Amortised proportionally over the contract period;
communication facilities, etc. or
• Amortised according to the units of production
On-site exploration expenses method over the contract period.
are generally deductible
in the year in which they
Amortisation starts from the month in which production
are incurred, provided the
operations are approved by the MoEMR.
expenses meet the general
deductibility criteria.
Stripping costs that are incurred during production
Major exploration and mine operations, such as the cost of overburden removal,
development expenses the cost of opening underground pits (including to find
should generally be new reserves), etc. should be deducted outright.
capitalised as intangible
assets and amortised These rules are also applicable to taxpayers that hold
upon spending rather than more than one mining licence and simultaneously carry
during the production stage. out both pre-production and production operations.

Under the HPP Law, Overall, these stripping arrangements could result in
intangible assets with a useful pre-production spending being recoverable (in terms
life of more than 20 years can of tax) over a longer period. This could be problematic
be amortised using either for projects with mine lives that are significantly shorter
a diminishing balance or than the concession period. The recovery of any post-
straight-line approach over a production spending is also effectively subject to the
useful life of 20 years or over five-year limit on tax losses carried forward.
the actual useful life of the
asset based on the taxpayer’s Coal
bookkeeping. Under GR 15/2022, for coal mining companies that
follow the prevailing ITL (e.g. coal IUPs), pre- operating
expenditure with a useful life of more than one year
(which arguably includes stripping costs incurred during
pre-production) should be capitalised and amortised
starting from the month in which production operations
are approved by the MoEMR, either: proportionally over
the contract period; or based on the units of production
method over the contract period.

Since stripping costs incurred during the production/

operations are not specifically regulated under GR
15/2022, if such costs have a useful life of more
than one year, these cost should be capitalised and
amortised starting in the year in which the expense is
incurred, using either a diminishing balance or straight-
line approach over their useful life.

106 PwC
Depreciation of Fixed Assets

Fixed assets are categorised into four categories based on the nature of the asset and its
expected useful life. The rate at which assets can be depreciated will depend upon the
category of the asset. Assets are generally depreciated over four, eight, 16, or 20 years, and
taxpayers may apply a diminishing balance or a straight-line approach.

The HPP Law distinguishes between non-permanent buildings and permanent buildings,
which have useful lives of 10 years and 20 years respectively.

The HPP Law stipulates that if a permanent building has a useful life of more than 20 years,
the depreciation can be carried out using the straight-line method, using either a useful life
of 20 years or the actual useful life based on the taxpayer’s bookkeeping.

On 17 July 2023, Minister of Finance Regulation No. 72 Year 2023 (“PMK 72”) was issued
as an implementing regulation of the HPP Law pertaining to the depreciation of tangible
assets (i.e. fixed assets and buildings) and/or the amortisation of intangible assets. PMK
72 allows that permanent building owned and used prior to 2022 and that have been
depreciated based on a useful life of 20 years can be depreciated over more than 20 years,
provided that the taxpayer had submitted a notification to the DGT by 30 April 2024.

Another key feature of PMK 72 is the capitalisation of the costs of repairing tangible assets.
These costs are added to the tax net book value of the underlying assets repaired, resulting
in an “adjusted tax net book value amount”. The repair costs start to be depreciated in the
month of disbursement or the month in which the repair process is completed. If the repair
costs:
a. Do not increase the useful life of the fixed asset or building − then the adjusted tax net
book value amount is depreciated for the remaining useful lives of the underlying assets;
or
b. Increase the useful life of the fixed asset and building − then the adjusted tax net book
value amount is depreciated over the remaining useful life of the underlying assets plus
the additional useful life, up to the maximum useful life of that asset category. This
excludes buildings that use the actual useful life (i.e. more than 20 years), which can be
depreciated using the actual useful life.

However, capitalisation only applies to repair costs which were incurred after the initial
acquisition and that provide future economic benefits in the form of additional capacity,
production quality, or improved performance standards or that can extend the useful life of
the asset.

Expenditure is not categorised as a capitalised repair cost if it is a substitute for routine

maintenance performed once or more than once a year, e.g. spare parts replacement during
a regular service.

Minerals
Specifically for holders of IUPK-OPs that have been converted from CoWs, fiscal
depreciation and/or amortisation under GR 37/2018 shall be calculated in accordance with
the following:
a. For assets that were obtained prior to the issuance of the IUPK-OP:
i. The depreciation or amortisation rules outlined in the original CoW (except for
buildings) apply until the end of the fiscal year in which the IUPK-OP was issued;

Mining in Indonesia: Investment, Taxation and Regulatory Guide 107

 ii. The prevailing depreciation or amortisation rules apply (except for buildings)
for fiscal years following the issuance of the IUPK-OP, with depreciation or
amortisation over the remaining useful lives based upon the tax book value at
the beginning of the fiscal year following the issuance of the IUPK-OP;
iii. There is an entitlement to depreciate or amortise the residual tax book value of
assets with useful lives that end in the fiscal year following the issuance of the
IUPK-OP; and
iv. The depreciation rules outlined in the original CoW apply to existing buildings
over the life of the IUPK-OP;
b. Assets obtained after the issuance of the IUPK-OP follow the prevailing depreciation or
amortisation rules; and
c. If the IUPK-OP for whatever reason ends prior to the date set out in the IUPK-OP, the
residual value may be deducted.

Coal
Specifically for holders of an IUPK as a continuation of CCoW Operations, the fiscal depreciation
and/or amortisation under GR 15/2022 shall be calculated in accordance with the following:
a. For assets obtained prior to the issuance of the IUPK and that are still owned by the
IUPK holders or that have become the property of the State:
i. There is an entitlement to depreciate all of the residual tax book value of the
tangible assets in the fiscal year in which the IUPK was issued;
ii. The amortisation rules outlined in the original CCoW apply until the end of the
fiscal year in which the IUPK was issued;
iii. There is an entitlement to amortise the residual tax book value of intangible assets
with useful lives that end in the fiscal year following the issuance of the IUPK;
iv. The prevailing amortisation rules apply to fiscal years following the issuance of
the IUPK, with amortisation over the remaining useful lives being based upon the
tax book value at the beginning of the fiscal year following the issuance of the
IUPK; and
b. Assets obtained after the issuance of the IUPK follow the prevailing depreciation or
amortisation rules.

Amortisation of Intangible Assets

Intangible assets include pre-operating costs, patents, rights, licences, etc. Intangible
assets can be amortised over an effective life of either four, eight, 16 or 20 years, using
either a diminishing balance or the straight-line approach. The HPP Law stipulates that
intangible assets with an actual useful life of more than 20 years can be amortised using
either a diminishing balance or straight-line approach over a useful life of 20 years, or over
the actual useful life based on the taxpayer’s bookkeeping. Furthermore, intangible assets
owned and used prior to 2022 and that have been amortised based on a useful life of 20
years can be amortised over more than 20 years, provided that the taxpayer has submitted
a notification to the DGT by 30 April 2024.

Any costs that are incurred for the acquisition of mining rights with a beneficial life of more
than one year should be amortised using the units of production method, at a rate not
exceeding 20% per annum.

108 PwC
Mine Closure

The prevailing ITL is not clear on whether provisions for mine closures (e.g. mine
infrastructure demobilisation costs) are deductible. Since mine closure costs usually occur
in the later stages of a mine’s life, when the company is earning little or no income, proper
planning is necessary to ensure the utilisation of the tax deductions arising from these costs.
The current regulations relating to reclamation reserves are silent on the question of mine
closure reserves, meaning that these reserves are unlikely to be deductible until the related
costs are actually incurred.

Reclamation Reserve Non-Interest-Bearing Loans

For accounting purposes, a mining company is It is common for a shareholder

usually required to maintain a reclamation reserve not to charge interest on loans
in its accounts to cover the environmental to mining companies during the
management and reclamation work that is to be exploration and development
conducted during the mining stage and at the stages. However, care should be
end of the life of the mine. taken to structure the terms and
conditions of the loan to ensure that
The reclamation reserve should be deductible, they observe the applicable transfer
provided that it is calculated in accordance with pricing rules. Non-interest-bearing
the prevailing energy/mineral resources sector loans from shareholders are only
laws/regulations. If the actual costs exceed allowed if certain requirements are
the value of the reserve, then the balance will met.
generally be deductible.

Thin Capitalisation Rule

Effective from the fiscal year 2016 onwards, the MoF has put in place “thin capitalisation”
rules under Regulation No. 169/PMK.010/2015 (PMK 169). PMK 169 provides for a
maximum Debt-to-Equity Ratio (DER) of 4:1 for the deduction of interest expenses.

PMK 169 disallows deductions on interest expenses in the following circumstances:

• Entirely, if the equity is zero or negative;
• Partly, according to the portion of the loan exceeding the DER;
• Partly, according to the portion of the loan that is associated with the generation of
income subject to final tax (e.g. land and/or building rentals);
• Entirely, for the non-reporting of private offshore loans.

PMK 169 defines interest as including discounts or premiums, arrangement fees, interest
on leases, compensation for loan guarantees, and any related foreign exchange expenses.
Even when the DER is within the permitted level, the ITL requirements should still be
complied with – meaning that a challenge to interest deductions would still be possible if,
for example, the loan was used to generate Indonesian bank interest income; the interest
rate was not at arm’s length; or the related party's loan leverage was outside of industry
norms.

Director General of Tax Regulation No. PER-25/PJ/2017 (“PER 25”), as the implementing
regulation for PMK 169, provides the DER calculation form and the Foreign Loan Report
form that should be attached to the annual CIT return of a company subject to DER. The
requirement to submit the forms in the CIT return applied from the fiscal year 2017.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 109

 The HPP Law has now expanded the acceptable methods for calculating the deductible
financing costs to include other methods which are commonly used internationally, such as
the use of the Percentage of Earnings Before Interest, Taxes, Depreciation and Amortisation
(EBITDA).

The details of these changes are yet to be provided, but both could substantially impact
project economics. Further details of the new Thin Capitalisation Rules shall be stipulated
in a Government Regulation. As GR 37/2018 and GR 15/2022 stipulate that the deductibility
of interest expenses in the mining sector shall also follow the prevailing ITL, developments
around interest deductibility, in particular, will need to be monitored going forward, although
a move away from the current “one-size-fits-all” 4:1 ratio would generally be welcomed.

• Certain other BIKs, subject to the

BIKs fulfilment of certain requirements,
such as gifts, work equipment
Prior to the enactment of the HPP Law, and facilities, health and medical
BIKs provided by employers were typically treatment, sports facilities,
not taxable in the hands of employees and communal residential facilities and
did not constitute deductible expenses for vehicles for specific employees.
employers. However, BIKs required for the
execution of a job, for example protective
clothing, uniforms, transportation costs Transactions with Related Parties
to and from the place of work, the cost
of providing food and beverages to all Payments to affiliates may be deductible
employees, and BIKs provided in remote if they are directly attributable to mining
areas were still not taxable in the hands operations. However, the deduction is
of employees but could be treated as limited to the amount that would have
deductible expenses by employers. been paid to a non-related party for the
same service.
Companies located in remote areas were
required to submit an application to the The DGT has increased its audit focus on
DGT to obtain validation that their place of Related-Party Transactions. Taxpayers
business was indeed located in a remote must make detailed disclosures in their
area. CIT return regarding the number of their
Related-Party Transactions, and also
However, under the HPP Law, BIKs are be able to justify the use of a particular
generally now deductible expenses for pricing methodology. The DGT has
employers starting from 1 January 2022, been actively performing transfer pricing
and are taxable in the hands of employees audits, meaning that taxpayers with
starting from 1 January 2023, except for Related-Party Transactions must carefully
the following BIKs which are deductible for consider their TP positions. In addition,
employers but not taxable in the hands of the DGT now requires the preparation of
employees: standard TP documents, i.e. a Master File
• Food and beverages provided to all and a Local File, as well as Country-by-
employees; Country Reporting (CbCR).
• BIKs provided in certain areas
(generally remote areas); The Master File and the Local File should
• BIKs necessary to carry out work; be submitted by the filing deadline for
• BIK financed by the regional/state, the CIT return. Should an Indonesian
revenue/budget, or company be a parent entity of a business
group whose consolidated gross turnover
amounts to at least IDR 11 trillion, the

110 PwC
CbCR should also be filed with the Tax However, such a correction will not result
Office. Otherwise, such company is only in any additional creditable Input VAT to
obliged to submit a CbCR notification. For the buyer, and any creditable Input VAT
the fiscal year 2023, the CbCR or CbCR will still refer to the pre-adjustment price
notification should be filed by 31 December stated in the original VAT Invoice.
2024 at the latest.

On 29 December 2023, Minister of Finance Tax Losses Carried Forward

Regulation No. 172 Year 2023 (PMK 172)
regarding the implementing guidelines for Tax losses can be carried forward for up to
the application of the Arm’s Length Principle five years under the prevailing ITL, and they
(ALP) on Related-Party Transactions was are recouped on a first-in-first-out basis. Tax
issued. losses cannot be carried back.

Several key features of PMK 172 are as

follow:
Article 22 Income Tax Collection
1. The DGT is authorised to request TP
documentation, and the taxpayer must
Purchases of coal and minerals from an
provide it within one month of the
entity (or individual) holding an IUP are
request. This is applicable not only during
subject to a requirement to collect and
a tax audit, but also during compliance
remit Article 22 income tax at 1.5% of the
monitoring processes. A taxpayer who
purchase price at the time of purchase.
does not fulfil their obligation to provide
Article 22 income tax at 1.5% is also
TP documentation shall be subject
applicable to exports of coal and minerals
to sanctions in accordance with the
by IUP companies (which is remitted upon
provisions of the taxation laws and
export).
regulations.
2. TP adjustments made by the DGT are
The sale of gold bars, other than for sale to
considered as indirect profit repatriations
BI or for processing into jewellery for export
to the affiliated party, and are treated
is subject to Article 22 income tax at a rate
as taxable dividends that are subject
of 0.25%, which is collected by the gold
to tax upon the payment date, or when
producer.
they are available to be paid, or when
they are due. However, PMK-172 also
Article 22 income tax constitutes a CIT
regulated that a TP adjustment will not
prepayment, and therefore only represents a
be considered as a dividend if there is
cash flow matter.
an addition/deduction of cash (or cash
equivalents) in the amount of the TP
adjustment prior to the issuance of the
Tax Assessment Letter (Surat Ketetapan Bookkeeping in USD
Pajak or "SKP") and/or if the taxpayer has
agreed with the transfer price determined For tax purposes, a Foreign Investment
by the DGT. (Penanaman Modal Asing or “PMA”)
3. The DGT is authorised to adjust the company may request authorisation to
VAT tax base based on the arm’s length carry out its bookkeeping in USD and in
market price if the selling price to the the English language. The company must
related party is lower than the arm’s request approval no later than three months
length market price. PMK 172 also after its establishment, or no later than
highlights that any form of TP adjustment three months before the commencement
performed by the DGT can be allocated of the USD accounting year (for an already-
to each transaction involving the delivery established company).
of taxable goods and/or taxable services.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 111

 Following the adoption of accounting standards regarding the use of an appropriate
functional currency (consistently with the International Financial Reporting Standards
(IFRS)), wholly Indonesian-owned entities, in addition to PMA companies, can now opt to
use the USD rather than the IDR as their bookkeeping currency for tax purposes when a
currency other than the IDR is their functional currency. The same deadlines apply to these
applications.

The USD is the only alternative to the IDR for tax purposes.

Pillar Two GloBE Rules

On 31 December 2024, MoF regulation No. 136 Year 2024 was issued to implement the
Top-up Tax mechanism under the Global Anti-Base Erosion (“GloBE”) Rules in Indonesia.
The regulation is designed to be aligned with the Organisation for Economic Co-operation
and Development (“OECD”) GloBE Rules.

GloBE Rules are aimed at implementing global minimum tax rules that enforce a global tax
framework ensuring a minimum taxation of 15% for Multinational Enterprises operating
in low-tax jurisdictions. There are three charging mechanisms of Top-up Tax adopted by
Indonesia, namely Income Inclusion Rule (“IIR”), Undertaxed Payment Rule (“UTPR”), and
Domestic Minimum Top-up Tax (“DMTT”). The rule applies in Indonesia to fiscal years
starting on or after 1 January 2025 for IIR and DMTT and for fiscal years starting on or after
1 January 2026 for UTPR.

GloBE Rules apply to CEs of a Multinational Enterprise Group with annual gross turnover
of at least EUR 750 million based on the Consolidated Financial Statements (“FS”) of the
Ultimate Parent Entity for at least two out of four fiscal years preceding the GloBE fiscal
year. Special rules apply on the threshold calculation where there is a merger and demerger
transaction occurring within the past four-year period.

Tax Holidays

On 24 September 2020, the MoF issued Regulation No. 130/PMK.010/2020 (“PMK 130”)
as the latest update/revision to the Tax Holiday incentive for substantial new investment in
designated Pioneer industries.

Table 5.1 Tax Holiday Incentive

No. Investment Period
(in IDR) (in years)
1 500 billion up to < 1 T 5
2 1 T up to < 5 T 7
3 5 T up to < 15 T 10
4 15 T up to < 30 T 15
5 ≥ 30 T 20

112 PwC
The available tax facilities under PMK 130 are set out below.

Capital Investment Plan

Provision IDR 100 billion –
≥ IDR 500 billion
IDR 500 billion
CIT reduction rate 50% 100%
Concession period
(from the start 5 – 20 years, depending on the investment value:
5 years
of commercial
production)
25% CIT reduction for the
Transition 50% CIT reduction for the next 2 years
next 2 years

The available tax holidays are applicable to relevant pioneer industry taxpayers that have
new capital investment plans of at least IDR 100 billion that meet the 4:1 DER, that have
committed to start realising the investment plan at the latest one year after the issuance of
the Tax Holiday approval, and that have not received any of the following:
a. Decision on approval or notification of rejection of the provision of the tax holiday
facility;
b. Decision on approval of the granting of the tax allowance facility;
c. Notification of granting of additional net income deduction based on being either a new
investment or a certain business field expansion, in a labour-intensive industry; and
d. Decision on the provision of an income tax facility in a Special Economic Zone.

PMK 130 does not require investors to make a time deposit in an Indonesian bank that is
equal to 10% of the planned investment value. However, PMK 130 does require a taxpayer
applying for a tax holiday to demonstrate that its domestic shareholders have fulfilled their
tax obligations in Indonesia by presenting a Tax Clearance Letter (Surat Keterangan Fiskal)
issued by the DGT.

For the mining sector, a tax holiday is available for the integrated upstream basic metal
industry (with or without integrated derivative product processing facilities). Many smelter
companies thus expect to be eligible for a tax holiday facility. However, by including the
smelter business in the (separate) tax allowance incentive, the Government wishes to
encourage investors in smelters (only) to apply for the tax allowance (and not for the tax
holiday).

The tax holiday facility is available based on recommendations generated by the Online
Single Submission (OSS) system, or applications submitted by BKPM to the MoF via the
DGT for up to four years following the effective date of PMK 130, i.e. until 8 October 2024.

On 9 October 2024, Minister of Finance Regulation No. 69 Year 2024 (“PMK 69”) was
issued as amendment to PMK 130. This regulation extends the above deadline up to 31
December 2025.

Whilst the eligibility and benefits of the Tax Holiday facility remain largely the same as in
PMK 130, PMK 69 added new provisions related to the implementation of Pillar Two, as
follows:
• A taxpayer who has obtained a Tax Holiday facility but also falls under a qualifying
taxpayer being part of a multinational enterprise group that is subject to Global Minimum
Tax under Pillar Two rules, is subject to an additional domestic top up tax under this rule.
• This domestic top up tax would also apply to those who have obtained the Tax Holiday
facility prior to the effective date of PMK-69.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 113

 Tax Allowances

The Government issued Regulation No.78 Year 2019 (“GR 78/2019”), regarding the tax
allowances that are available for companies that invest in certain business sectors and/or
regions. GR 78/2019 revokes a series of previous GRs (i.e. GR No. 18 Year 2015 which was
amended by GR No. 9 Year 2016).

The package of tax facilities consists of:

• A reduction in net taxable income of up to 30% of the amount invested, in the form of
qualifying fixed assets (including land), prorated at 5% for six years, provided that the
assets invested in are not being misused or transferred out within a certain period.
The assets in question must satisfy the following conditions:
i. They are new, unless originating from a complete relocation from another country;
ii. They are listed on the principal licence, investment licence and investment
registration, issued by BKPM and the provincial/regional one-stop service agency
or on the business licence issued by the OSS agency as a basis for obtaining a tax
allowance facility; and
iii. They are directly owned by the taxpayer (not through a lease) and are utilised for the
taxpayer's main business activity.
• Accelerated depreciation and amortisation for assets acquired for investment purposes;
• WHT on dividends paid to non-residents at a rate of 10%; and
• A longer tax loss carry-forward period, from five years to a maximum of ten years.

Mining sector tax incentives are also available, subject to the satisfaction of certain criteria
for the following activities:
• Basic iron and steel manufacturing;
• Iron sand processing and refining;
• Gold and silver processing and refining;
• Certain brass, iron ore, uranium, thorium, tin, lead, copper, bauxite/aluminium, zinc,
manganese, and nickel processing and refining activities; and
• Coal in the form of coal gasification, coal liquefaction, and coal upgrading.

Particularly with regard to coal liquefaction and coal upgrading, these income tax incentives
are generally only applicable to activities undertaken outside Java.

GR 78/2019 sets out the criteria for each designated business sector and/or region
regarding the investment value, the number of Indonesian workers, and the level of local
content. This regulation only sets out the high-level criteria for enjoying the tax incentives,
and leaves the detailed requirements to be determined by the relevant Ministers.

GR 78/2019 confirms that taxpayers who obtain this tax allowance facility cannot enjoy
other tax facilities, such as:
• Tax facilities for Integrated Economic Development Zones (Kawasan Pengembangan
Ekonomi Terpadu – “KAPET”);
• Tax holiday facility; and
• Taxpayers granted a super deduction facility on labour-intensive industries, as provided
for under GR No. 94, Year 2010, as amended by GR No. 45, Year 2019.

VAT

The delivery of goods and services in Indonesia is generally subject to VAT, except for the
delivery of certain pre-determined types of goods and services. Companies delivering VAT-

114 PwC
able products are entitled to claim input VAT on goods and/or services, provided that the
goods and/or services are necessary for the companies’ business activities.

Apart from mining companies that produce gold bars for the Government’s foreign
exchange reserve, mining companies generally need to register for VAT purposes.

VAT Rate

Under the HPP Law, the VAT rate is to be increased from the previous rate of 10% to:
a. 11% - from 1 April 2022.
b. 12% - starting from 1 January 2025.

On 31 December 2024, MoF Regulation No.131 Year 2024 stipulating new VAT rate of 12%
applicable from 1 January 2025. The 12% VAT rate is applicable to the import and domestic
delivery of taxable goods. The VAT treatments are as follows:
a. VAT Treatment for delivery of luxurious goods
• From 1 January to 31 January 2025 – the 12% rate is applied on a Tax Base using
Other Value (Dasar Pengenaan Pajak/DPP Nilai Lain). The DPP Nilai Lain is set at
11/12 of the selling price, which renders the “effective” VAT rate to be 11%; and
• Starting 1 February 2025 – the 12% rate is applied on the normal Tax Base in the
form of the selling price.

b. VAT treatment for delivery of services and non-luxurious goods

For taxable goods (that is not luxurious) and services, the 12% rate is applied on the
DPP Nilai Lain, which is set at 11/12 of the import value, selling price, or compensation,
which renders the “effective” VAT rate to be 11%.

As with the general rule, the Input VAT related to these transactions can be credited.

VAT Object in the case of Mining Products

Pursuant to the Job Creation Law, the supply of coal, even in an unprocessed state, is now
a VAT-able supply. As a result, coal miners need to register for VAT purposes. The miner
should then be entitled to an input credit for the VAT incurred on relevant costs, but also
needs to add VAT to the sales prices of its coal supplies at the prevailing VAT rate. The rate
is currently 11% for domestic supply and 0% for exports.

On 28 June 2021, the Government of Indonesia issued GR No. 70 Year 2021 (“GR 70”),
which stipulates that gold granules remain subject to VAT but not collected (previously VAT
collected). Such facility can be obtained by fulfilling the following requirements::
a. Having a diameter of at least 7 (seven) millimeters;
b. Having a refinement purity of 99.99% based on the Indonesian National Standards and/
or accredited by the London Bullion Market Association Goods Delivery; and
c. Constituting production proceeds and being delivered by CoW, IUP, IUPK or IUPR
holders to entrepreneurs, who will further process the gold granules to produce main
products in the form of gold bars and/or gold jewellery.

Upon failure to fulfil the above requirements, VAT will be collected accordingly.

On 7 December 2023, Minister of Finance Regulation No. 133 Year 2023 (“PMK 133")
was issued as an implementing regulation of GR 70. PMK 133 further elaborates that gold
granules transferred to other entrepreneurs (who do not process gold granules into gold
bars) either within the customs area or for export purposes shall be subject to the collection
of VAT.
Mining in Indonesia: Investment, Taxation and Regulatory Guide 115
 Under the HPP Law and GR No. 49 Year 2022, the following VAT treatments have been in
effect since 1 April 2022:
a. Minerals (except for those mentioned in point b) below) are subject to effective VAT rate
at 11%;
b. Iron ore, tin ore, gold ore, copper ore, nickel ore, silver ore and bauxite ore are subject
to VAT but are exempted;
c. Gold bars having a gold content of at least 99.9% (proven by a certificate) including
gold bars the ownership of which is digitally recorded, other than those for the
Government’s foreign exchange reserve are subject to VAT but not collected; and
d. Gold bars for the Government’s foreign exchange reserve are not subject to VAT.

Pre-Production VAT

During the pre-production stage, under the VAT Law, as most recently amended by the HPP
Law, subject to the fulfilment of the creditability criteria, all of the input VAT that has been
incurred is creditable. Furthermore, since the company will not have impose any output VAT
during the pre-production period, a VAT overpayment position is likely.

Claims for refunds of pre-production VAT overpayments should be requested at the end
of the fiscal year (previously these could be refunded on a monthly basis). Further, if the
company fails to commence production (defined as the delivery and/or export of VAT-able
goods/services) within three years (five years for certain sectors, including the mining
sector, that produce taxable mining goods) from the date on which the company first
credited the input VAT, then the company must repay the VAT refund and penalty by the
end of the month following such failure to deliver the VAT-able goods/services. This timing
requirement obviously presents a problem for long-term mining projects, which may take
several years to enter into production.

IUPK-OP Holders as VAT and Luxury Sales Tax Collectors

On 19 December 2018, the Government issued MoF regulation No. 166/PMK.03/2018

(“PMK 166”), which appoints the holders of mineral IUPK-OPs originating from the
conversion of “active” CoWs that were issued no later than 31 December 2019 as
Collectors of VAT and Luxury Sales Tax (LST).

Being a VAT and LST Collector requires the holder of the mineral IUPK-OP to remit VAT and
LST on purchases/imports directly to the State Treasury. Supplies of up to IDR 10 million
per annum (inclusive of VAT and/or LST) and payments for purchases of oil and non-oil
fuels from Pertamina are exempted.

Where an entity is exempt from its obligations as a VAT Collector, the standard VAT
mechanism applies, meaning that the vendor in question will charge and collect VAT and/or
LST from the IUPK-OP holder.

WHT

Mining companies are obliged to withhold tax on payments for dividends, interest, royalties,
and most types of services.

WHT is payable on interest and royalty payments to Indonesian companies at a rate of

15%.

116 PwC
WHT of 2% is applicable to payments for most types of services made to Indonesia-
resident entities. If payments are made to non-residents, the WHT rate is 20%. A tax treaty
may provide outright relief on service payments and reduce the WHT on payments of
dividends, interest, and royalties (generally to 10% or 15%). The DGT- regulated procedures
must be followed in order to access the benefits of a tax treaty, including a pre-determined
disclosure form and measures to prevent tax treaty abuse.

The Job Creation Law outlines a number of changes to the tax treatment of dividends:
a. Income tax and WHT will no longer be imposed on dividends paid to Indonesian
companies.
b. Foreign-sourced dividends have become non-taxable, provided that at least 30% of the
profits are reinvested in Indonesia.

Final Tax on Interest on Deposits of Mining Export Proceeds (Devisa Hasil

Ekspor or “DHE”)

Interest income, either in foreign currency or in IDR, on DHE deposits that have been placed
domestically with a bank that is incorporated or domiciled in Indonesia, or with a branch of
a foreign bank in Indonesia, shall be subject to final income tax at certain rates (0% – 10%)
depending on the time period of the deposit, as shown in the tables below:

Table 5.3 Final Tax on Interest of Mining Export Proceeds

Funds converted from foreign currency to
Funds denominated in foreign currency
Rupiah
Rates Placement Period Rates Placement Period
0% > 6 months 0% ≥ 6 months
3 months up to
2.5% 6 months 2.5%
< 6 months
3 months up to 1 months up to
7.5% 5%
< 6 months < 3 months
1 months up to
10%
< 3 months

PBB

Under MoF Regulation No. 186/PMK.03/2019 concerning the classification and procedures
for determining the sales value of PBB objects for certain sectors, including the mining sector
(minerals and coal) (“PMK 186”), PBB in the mining industry generally covers land and/or
buildings located in the mining areas, including locations both within the mining licence area
and outside the mining licence area that are used for mining activities. PBB is applicable to
both onshore and offshore activities.

PMK 186 defines PBB objects as follows:

• Land surfaces, including: (1) onshore areas (such as reserve production areas,
unproductive areas, emplacement areas, security areas, etc.); and (2) offshore areas;
• Earth bodies; and
• Building structures that are permanently attached to the land, and that are used for
mining activities.

The PBB rate is 0.5% of the taxable sale value of the PBB object. The taxable value for
mining assets is stipulated as a proportion of the sales value of the PBB object, i.e. 40% of
the sale value for PBB objects.
Mining in Indonesia: Investment, Taxation and Regulatory Guide 117
 The sale value of PBB objects is determined by the DGT on behalf of the MoF, and updated
periodically, depending on the stage of economic development of the region in question.

PMK 186 stipulates the following:

• For land surfaces, the sales value of PBB objects will vary according to the
characteristics of their use (e.g. not yet utilised, production reserve area, unproductive
area, safety area and emplacement area). This is obviously relevant to mineral and coal
mining.
• For earth bodies, the sales value of PBB objects will depend on the net operating
revenue from mining (which is determined based on the actual sales price or benchmark
price, whichever is higher) from the previous year if the mine is already in the production
stage. Otherwise, the sales value of PBB objects will be determined by the DGT.
• For buildings, the sales value of PBB objects is based on the “New Acquisition Price”.
This is defined as all of the costs incurred to acquire the PBB object at the time of its
assessment, less depreciation, based on the physical condition of the PBB object.

5.3 Tax Regime for a CoW/CCoW/CCA Company

One of the key features of these contracts is their lex specialis status, meaning that the
terms in the contract override the generally prevailing law. For example, when special tax
rules are set out in a contract, these tax rules generally take precedence over the prevailing
Tax Laws.

Generally, the tax rules in a contract will reflect those that were in force at the time when
the contract was signed, although there may be some exceptions. Typically, a contract fixes
the tax rules for the duration of the contract (with the exception of second-generation coal
contracts, which generally follow the prevailing tax regulations).

Taxation matters that are not governed by the contracts should follow the prevailing Tax
Laws and regulations.

The advantages of having lex specialis tax rules in a contract include tax stability and
predictability throughout the life of the project, or at least until the end of the contract term.

The disadvantage of lex specialis tax rules is that the mining company may not always
be able to take advantage of favourable changes in the wider ITL, such as reductions in
income tax rates or introductions of tax incentives. Despite this, lex specialis tax rules
have historically been favoured by investors, particularly for high-capital, long-life mining
projects, as they provide stability for various aspects of the mining operations, including
tax.

The mining tax regime that is included in a contract is relatively straightforward. In some
cases, however, the language of the contract may be open to a range of interpretations,
which can result in disputes between the mining company and the DGT.

The transitional provisions of the Mining Law (Article 169) provide that existing contracts
will remain effective until their expiration dates. However, confusingly the contracts are
still required to be adjusted within one year in order to conform to the Mining Law, except
for the provisions regarding state revenue (except, again, if efforts are made to increase
the state revenue). Accordingly, the Government has approached all the CoW and CCoW
holders to amend the terms of their contracts, a process that has now largely been
completed (see Section 4.5 of this Guide, “CoW and CCoW Renegotiations”, for further
details).

118 PwC
Appendix E of this Guide summarises the typical tax treatments for particular generations
of contracts. Not all generations of contracts have specific tax rules and, as such, their tax
treatments may simply follow the prevailing ITL. In assessing the applicable tax regime, a
detailed review of the contract is necessary. In addition, the tax treatments described in this
guide are generic, and variations may exist between the various generations of contracts.

CoWs and CCoWs with lex specialis tax provisions are to be honoured until the end of the
contract period, and thus are not directly impacted by GR 37/2018 or GR15/2022 (although
most of these CoWs and CCoWs are in any case being phased out).

CIT Tax Registration

Similarly to an IUP/IUPK company, a contract company A company holding a

is subject to income tax on its net taxable profits. In the contract is required to
contract, the expenditure described below is normally register for tax and to
allowed to be deducted from the gross income. obtain an NPWP. The
contract company should
Mineral CoWs typically have lex specialis CIT rules. With register for tax at the local
regard to a CCA/CCoW, first-generation and most third- tax office where the mine
generation contracts include lex specialis CIT provisions. operates. This includes
Where lex specialis tax rules do not apply, the company meeting its VAT obligations
must follow the prevailing income tax rules for the CIT (if applicable and not
calculation. centralised at the head
office) and WHT.

Bookkeeping in USD
Reclamation Reserve
For tax purposes, a contract company may opt to apply
bookkeeping in USD and in the English language. The Per the prevailing tax
company needs to notify the DGT of its bookkeeping rules, some generations
in USD no later than a month before the start of the of contracts may require
accounting year in USD. reference to the previous
ITL and/or a deposit with a
Irrespective of the currency and language used, the state-owned bank in order
company may settle its CIT liabilities in either IDR or USD, for the reclamation provision
and must file its tax returns in the Indonesian language. to be deductible.

With respect to CIT, the relevant tax returns should be

presented in USD alongside the equivalent figures in IDR Operating Expenses
in the annual CIT return.
Operating expenses are
generally treated as per the
Exploration and Development Expenses prevailing law.

On-site exploration expenses are generally deductible in

the year in which the expenses are incurred, provided such Selling and General
expenses relate to the contract area. Mine development and Administrative
expenses should generally be capitalised and amortised in Expenses
accordance with the amortisation rules in the contract.
These are generally treated
as per the prevailing law.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 119

 Pre-Incorporation Expenses Asset Revaluation
The shareholder(s) of a contract company may Generally treated as per the
incur expenditure before the contract company is prevailing law.
incorporated and the respective mining contract is
signed.

Contracts normally allow these pre-incorporation Employee Benefits/

expenses to be transferred from the shareholder(s) Facilities
to the contract company. These pre-incorporation
expenses are recognised as deferred pre-operating Contracts normally provide
costs, and may be claimed as deductions, by way of for concessionary tax
amortisation, starting from the beginning of production treatments of benefits
operations. provided to employees
who reside in the contract
Most contracts require these pre-incorporation area. Under the HPP Law,
expenses to be audited by a public accountant and the costs of most of these
approved by the DGT. However, the implementation of benefits are deductible,
this rule is not entirely clear. but such benefits are not
taxed in the hands of the
There are a number of transactional tax issues that employees. Please refer
need to be addressed relating to the transfer of pre- to Section 5.2 above for
incorporation expenses from the shareholder(s) to further explanation.
the company, including the VAT and WHT obligations
(although VAT may be exempt under the contract).
Interest Expenses

Depreciation of Fixed Assets Most CoWs and CCoWs

provide specific rules
Fixed assets are generally deductible through regarding DER. If such
depreciation. Different generations of contracts rules are not available in
include different depreciation rules, but most offer an the contract, the company
accelerated rate. should follow the DER as
stipulated in PMK-169 and
Mining infrastructure, such as buildings, roads, bridges, PER 25.
and ports, is generally depreciable. Public infrastructure,
such as roads, schools, and hospitals, is usually
deductible through depreciation under a contract’s rules.

Fixed assets should be classified in categories based on

their useful lives. Accelerated depreciation rates may be
available for fixed assets that are located in the contract
area. Earlier generations of CCoWs/CCAs usually
provide an investment allowance (i.e. a hypothetical
depreciation) and have a fixed depreciation rate that is
based on the straight-line method, irrespective of the
types of assets.

For certain contracts, if the mine’s life is shorter than the

asset’s fiscal useful life, then the remaining book value
may be fully depreciated at the end of the mine’s life.

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Imports of Capital Equipment Amortisation of
Intangible Assets
Most contracts provide an exemption from Import Duty,
VAT, and income tax on imports of capital equipment Intangible assets may
for up to the tenth year after the commencement of include pre-operating costs,
commercial production. patents, rights, licences, etc.

If no import facility is available under a contract, Expenses that are incurred

then relief or exemptions may be available under the prior to production (with
prevailing laws. a useful life longer than
one year, although some
On 13 August 2019, the MoF issued MoF regulation No. contracts do not require
116/ PMK.04/2019 (“PMK 116”) revoking MoF regulation this) may be capitalised and
No. 259/PMK.04/2016. Effective from 11 October 2019, amortised once production
PMK 116 sets out the requirements for the transfer, commences. These may
re-exporting, or destruction of goods that have been also include expenses
imported by CoW and CCoW companies, and that have incurred by the contract
obtained exemptions from Import Duty and VAT upon company’s shareholder(s)
import. In general, any transfer/re-exporting/destruction prior to the formation of
of goods that have been imported under exemptions the company (i.e. pre-
within five years requires a recommendation from the incorporation expenses).
BKPM and approval from the Customs Office. Failure to
meet these requirements may lead to Import Duty and
VAT being payable, plus associated penalties. Tax Losses Carried
Forward
PBB Tax losses can be carried
forward for the period
PBBs for CoW and CCoW companies are usually stipulated in the contract.
specifically governed in the contracts. This is generally longer than
the five-year carry-forward
allowed under the prevailing
ITL. Tax losses cannot be
Sales Tax carried back.

Before the enactment of the VAT Law in 1984,

Indonesia imposed a sales tax. Under the lex specialis
rules, sales tax is still applicable to first-generation CCA
companies at a maximum of 5% for certain services
that are provided to CCA companies, payable on a self-
remittance basis (similarly to WHT).

From 1 January 2013, MoF regulation No. 194/

PMK.03/2012 has also provided that first-generation CCA
companies should not collect VAT on such services.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 121

 VAT Latest Developments

With the exception of first-generation CCA companies At the time of writing, it has
that are subject to sales tax (see below), CoW/CCoW been reported that most CoW
companies are subject to VAT on the utilisation of and CCoW holders have
services and goods. completed renegotiations
resulting in amended CoWs/
During pre-production, the company will not have any CCoWs. As a follow up to
output VAT, as there will not yet have been any deliveries the explanation in Section
of mining products. Therefore, a VAT overpayment 4.5, the tax provisions in
position is likely, as the company must pay input VAT to the amended CoWs and
vendors on its purchases of taxable goods or services. CCoWs generally maintain
the higher CIT rate and adjust
All VAT payments are denominated in Rupiah. If the
the other tax rules to follow
company keeps its books in USD, then any outstanding
the prevailing tax laws and
VAT receivables could give rise to foreign- exchange
regulations. Nevertheless,
issues, particularly if the receivables are long
the fiscal regime for each
outstanding.
contract should be reviewed
on a case-by-case basis. The
new tax provisions will take
WHT effect on the signing date
of the amended CoWs and
CoW and CCoW companies are obliged to withhold tax CCoWs.
from payments of dividends, interest, royalties, and most
types of services. The WHT rate will depend on the tax
rules stipulated in the contract, the type of payment, and
whether the recipient is a resident or a non-resident.

However, pursuant to MoF regulation No. 39/PMK.

011/2013, the MoF requires CoW and CCoW companies
to apply the prevailing WHT rates to income payable
to other parties (although this is often disputed by
CoW and CCoW companies based on the lex specialis
principles).

Photo source: PT Bukit Asam Tbk

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5.4 Other Taxation Considerations
Carbon Tax

As part of the Indonesian Carbon Pricing commercialisation mechanism, a Carbon Tax was
introduced with the promulgation of HPP Law. The Carbon Tax framework complements
the Indonesian mandatory carbon market, which is a sector-based regulated market and
mechanism.

A large number of areas of clarification remain outstanding as regards the proposed Carbon
Tax. However, the HPP Law indicates that the key framework will be as follows:
a) Tax objects: being those carbon emissions that have a “negative environmental”
impact. This criterion will be progressively refined according to Indonesia’s Carbon Tax
“roadmap”, which will ultimately cover:
i) Carbon emissions reduction strategies;
ii) Priority sector targets;
iii) Alignment with new and renewable energy development; and
iv) Alignment between various other policies;

b) Tax subjects: being individuals or corporations who:

i) Buy goods containing carbon; or
ii) Carry out activities that generate carbon emissions within a specified period. The
elucidation to the HPP Law states that priority for the Carbon Tax will be given
to corporate taxpayers and, at least initially, it will apply only to coal-fired power
producers (as was the case during the voluntary trial period).

c) Initial milestones: the Carbon Tax programme is to be gradually implemented as

follows:
i) For 2021: development of a carbon trading mechanism;
ii) For 2022 – 2024: introduction of a tax mechanism based on emissions limits (i.e.
following a “cap and tax” formula) to be applied to coal-fired power plants from 1
April 2022 at IDR 30/kg CO2e (circa USD 2.10/tonne CO2 p.a.);
iii) From 2025 onwards: full implementation of:
a) A carbon trading mechanism; and
b) The expansion of carbon taxation according to the readiness of the relevant
sectors by considering economic conditions, the readiness of market players,
etc.;

d) Tax rate: being the higher of:

i) The price set by the domestic carbon market (on a kg CO2e basis); or
ii) IDR 30/kg CO2e;

e) Facility: taxpayers who participate in carbon trading and the offsetting of emissions
(as well as other mechanisms) may be granted:
i) A Carbon Tax reduction; and/or
ii) Other incentives for the fulfilment of Carbon Tax obligations;

f) Implementing rules: these will be in accordance with the roadmap and the allocation
of Carbon Tax revenue to projects to increase control over climate change. Further
implementing regulations will stipulate key features including the tax rate, tax base,
administrative mechanism, and procedures aimed at reducing the Carbon Tax or other
fulfilments of Carbon Tax obligations.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 123

 On 12 December 2022, the Government issued Government Regulation No 50 Year 2022
(GR-50) which stipulates the following administrative mechanisms:
• A "Carbon Taxpayer" is defined as an individual or company purchasing goods
containing carbon or carrying-out activities which result in a certain level of carbon
emissions within a certain time period.
• Carbon Tax is paid through self-payment or collection by a Carbon Tax Collector.
A Carbon Taxpayer must submit an Annual Income Tax Return to report their
calculation and payment of Carbon Tax at the latest 4 months after the end of the
calendar year. While a Carbon Tax Collector must submit a monthly tax return at the
latest on the 20th of the following month, late submission will be subject to the same
penalty as other types of tax reporting. Certain taxpayers may be exempt from Carbon
Tax reporting.
• Carbon Taxpayers and Collectors must record those activities which emit carbon,
or the sale of goods containing carbon, so that the Carbon Tax due can be properly
calculated. The recording of documents and information should be conducted in
accordance with the general bookkeeping requirements and failure to do so will be
subject to the same penalty as failure to maintain bookkeeping.

Non-Tax State Revenue

Royalties Dead Rent

Royalties are payable to the Government on a Throughout the lives of all its
quarterly basis, based on the actual volume of mining interests, the company
production or sales. For CoW/CCoW companies, is required to pay annual dead
this is based on the terms of the contract. rent, with the amount normally
However, based on the prevailing based on the number of hectares
regulations and current practice, the royalties in the mining area and the stage
should be paid prior to shipment. the mining operations (e.g. there
are different rates for the general
The prevailing royalty rates applicable to IUP/ survey, exploration, and exploitation
IUPK/IUPK-OP holders are set out in Chapter 3. stages).

Regional Tax

Mining companies shall be subject to the prevailing regional taxes. On 5 January 2022, Law
No. 1 Year 2022 concerning the Financial Relationship between the Central Government
and the Regional Government (the “HKPD Law”) was passed, amending Law No. 28 Year
2009 concerning Regional Tax and Retribution (the “PDRD Law”). A mining company may
be liable for a number of regional taxes and retributions (except for first-generation CCoWs)
at rates ranging from 1.5% to 25%. However, starting on 5 January 2025 this range will
become 1.2% to 25% on a wide number of reference values that will be determined by the
relevant Regional Government.

Contracts may limit the additional types and rates of regional tax introduced after the
signing date of the contract. A summary of the different types of regional taxes is included
in Appendix B.

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Photo source: PT Aneka Tambang Tbk

Government Profit Share Under an IUPK-OP Purchase and Sale of

Mining Interests
Minerals – under an IUPK-OP
Specifically for holders of an IUPK-OP (a mining The direct transfer of a
business licence that represents a conversion from contract is subject to a
an active CoW), in addition to the royalties, dead rent, number of requirements,
land and buildings tax, and environmental and forestry making such transfers
regulations, the Government via GR 37/2018 also uncommon. The transfer of
requires the IUPK-OP holder to make the following ownership (in whole or in
“profit share” payments: part) is therefore generally
• A Central Government profit share due at 4% of achieved through the
net profit – per the Mining Law and regulations; disposal of an interest in
and the company holding the
• A Regional Government profit share that is due contract.
at 6% of the net profit – per the Mining Law and
regulations. The prevailing ITL stipulates
that gains from the sale
The above obligations are applicable from the calendar or transfer (in part or as
year following the issuance of the IUPK-OP. The net a whole) of mining rights,
profit is determined after deducting CIT, based on participation in financing,
the audited financial statements. The nature and tax or in the capital of a mining
deductibility of the “profit share” should be carefully company constitutes a tax
considered. object (and is therefore
taxable). Although this
Importantly, the Central Government and the Regional provision has been in effect
Government payment calculations appear to follow the from 1 January 2009, the
accounting profit rather than the taxable income. In operation of this provision is
addition, it is not likely that the payments will constitute not entirely clear.
“taxes” for foreign tax credit or for other fiscal purposes,
so any home country tax implications should be
considered carefully. Finally, there will doubtless be
scope for different calculation interpretations between
the various Government bodies.

Coal – under an IUPK as a continuation of CCoW

Operations
Similar to the above government share for IUPK-OP for
minerals.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 125

 Purchases and Sales of Shares Some Key Tax Considerations for
in an IUP/IUPK or Contract Investments
Company

This approach is common for A tax-efficient investment structure can create

acquisitions of mining properties significant tax savings over the life of a mine.
in Indonesia. For a domestic seller, A favourable structure may also be effective
income tax is imposed on the profits for project financing purposes. Some relevant
that are earned on the sale. For a contract and IUP/IUPK issues to be aware of
non-tax-resident seller, 5% income include the following:
tax is due on the gross proceeds, • Apart from state-owned enterprises and/
unless relief is available under a tax or non-minerals and rock commodity IUP
treaty or the company being sold holders which may hold more than one
is a listed company in Indonesia (in IUP and/or IUPK under the prevailing
this case, final tax of 0.1% is due on Mining Law, an individual legal entity can
the sales proceeds, subject to certain generally only hold one contract, IUP, or
requirements). IUPK. This ring-fencing rule, together with
the fact that there is no group relief for
The prevailing ITL includes a long-arm income tax purposes, means that careful
capital gains tax provision. The DGT planning is required, particularly in relation
can treat the sale of a conduit to the use of service companies within
or special purpose company the same group, as well as inter-company
established in a tax haven country, charges, inter-company borrowing, etc.
and that has an Indonesian • A tax-efficient shareholding structure can
subsidiary, as the sale of an interest in enhance a project’s feasibility (note that
an Indonesian company. In this case, under some tax treaties, and subject to the
the DGT can impose 5% final income fulfilment of Certificate of Domicile and no
tax on the gross proceeds of such a treaty abuse rule requirements, WHT on
sale. dividends may be reduced from 20% to
15%, 10%, or even 5%).
To date, there has been no • Sales of shares in a contract or in IUP/
definition of a tax haven, or what the IUPK companies that are not listed on the
implications would be if the indirect IDX by foreign investors are taxed at 5%
ultimate shareholder of the tax on the gross proceeds, unless protected
haven company were resident in a by a tax treaty.
jurisdiction with which Indonesia has • Some contracts offer a reduced WHT rate
a tax treaty. for dividend payments to foreign founder
shareholder(s).
• Project financing strategies or intra-
group financing should consider the
latest developments in relation to the thin
capitalisation rules, and note that debt
forgiveness is subject to tax in Indonesia
(this is a common issue for unsuccessful
exploration projects).
• The overall investment structure should
consider both mineral processing and any
refinery or downstream businesses.

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Core Tax Administration System Photo source: PT Freeport Indonesia

On 18 October 2024, Minister of

Finance Regulation No. 81 Year 2024
(“PMK 81”) was issued to streamline
several regulations in relation to
the implementation of the Core
Tax Administration System, to be
implemented from 1 January 2025.

In brief, PMK 81 adopts most of

the existing rules under the 42 MoF
regulations revoked by PMK 81 and
makes some alignments in terms of
payment and reporting deadlines for
monthly tax obligations, synchronises
the use of several terminologies,
and emphasises the imposition of
sanctions upon failure to fulfil the
stipulated tax obligations.

In addition, PMK 81 also changes

some of the provisions affecting the
imposition of tax and introduces new
avenues available in the Core Tax
System such as Taxpayer’s Deposit
and electronic communication
channels available under the new
system which in turn will change the
administrative mechanism for various
procedures. The procedures covered
under PMK 81 are applicable for all
types of taxes, namely Income Tax,
VAT, LST, Stamp Duty, Sales Tax, PBB,
and Carbon Tax.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 127

 Accounting
6 considerations
This accounting considerations section discusses certain
accounting issues that are commonly faced by mining
companies operating in Indonesia. However, it should be
noted that the discussion in this guide does not attempt
to cover all of the accounting requirements applicable to
mining companies operating in Indonesia. Please contact
one of our advisers (listed in Appendix F) to discuss these
further.

6.1 Exploration and Evaluation (E&E)

Exploration costs are incurred to discover mineral resources.
Evaluation costs are incurred to assess the technical feasibility and
commercial viability of the resources found. Exploration starts when
the legal rights to explore have been obtained. Expenditure incurred
before obtaining the legal right to explore is generally expensed, but
an exception to this would be separately acquired intangible assets,
such as a payment for an option to obtain legal rights.

The accounting treatment of E&E expenditure (capitalising or

expensing) can have a significant impact on the financial statements
and reported financial results, particularly for entities at the
exploration stage with no production activities.

Statement of Financial Accounting Standard (SFAS) No. 106

“Exploration for and Evaluation of Mineral Resources” sets out the
accounting treatment for E&E expenditures. Under SFAS No. 106,
an entity shall determine an accounting policy specifying which
expenditure items may be recognised as E&E assets, and apply the
policy consistently. In making this determination, an entity considers
the degree to which the expenditure can be linked to the discovery
of specific mineral resources. An entity may change its accounting
policies for E&E expenditure, if the change makes the financial
statements more relevant to the economic decision-making needs
of users and no less reliable, or more reliable and no less relevant to
those needs. An entity shall judge relevance and reliability using the
criteria in SFAS No. 208, “Accounting Policies, Changes in Accounting
Estimates and Errors”.

128 PwC
 Photo source: PT Vale Indonesia Tbk

Mining in Indonesia: Investment, Taxation and Regulatory Guide 129

 Expenditure incurred for exploration activities should be
expensed unless it meets the definition of an asset. An entity
recognises an asset when it is probable that economic benefits
will flow to the entity as a result of the expenditure. These
economic benefits might be available through the commercial
exploitation of mineral reserves, the sale of exploration findings,
or further development rights. It is often difficult for an entity
to demonstrate that the recovery of exploration expenditure is
probable.

Evaluation activities occur at a more advanced stage than

exploration activities, and hence they are more likely to meet the
criteria for recognition as an asset. However, each project needs
to be considered on its merits. The amount of evaluation work
required to conclude that a viable mine exists will vary for each
area of interest.

Management needs to develop a consistent and transparent

accounting policy that is applied throughout the various
phases of E&E activity, highlighting the cut-off point before the
capitalisation of costs commences. The costs incurred after a
probability of economic feasibility is established are capitalised
only if the costs are necessary to bring the resources to
commercial production. Subsequent expenditure should not be
capitalised after commercial production commences, unless they
meet the asset recognition criteria.

E&E assets can be measured using either the cost model or the
revaluation model. In practice, most companies use the cost
model. The depreciation and amortisation of E&E assets do not
usually commence until the assets are placed in service. The
E&E assets recognised should be classified as either tangible or
intangible according to their nature.

E&E assets are reclassified from the E&E account when

evaluation procedures have been completed. E&E assets for
which commercially viable reserves have been identified are
reclassified as development assets. E&E assets are tested for
impairment immediately prior to their reclassification from E&E,
and as well as when impairment indicators are identified, which
could include but are not limited to cases when:
• Rights to explore in an area have expired or will expire in the
near future, without the possibility of renewal;
• No further exploration or evaluation has been planned or
budgeted for;
• A decision has been made to discontinue E&E in an area
because of the absence of commercial reserves; and
• Sufficient data exists to indicate that the book value will not
be fully recovered from future development and production.

130 PwC
6.2 Development

Development expenditure represents costs that have been incurred to obtain access to
proven and probable reserves, and to provide facilities for extracting, treating, gathering,
transporting, and storing the minerals.

Development expenditure is capitalised to the extent that it is necessary to bring the

property to commercial production. Such expenditure should be directly attributable to an
area of interest, or be capable of being reasonably allocated to an area of interest. Costs
that could meet these criteria include:
• The purchase prices for development assets, including any duties and any non-
refundable taxes;
• Costs directly related to bringing the asset to the location and condition for its intended
use, such as drilling costs or costs for the removal of overburden to establish access to
the ore reserve; and
• The present value of the initial estimate of the future costs of dismantling and removing
the item and restoring the site on which it is located, where such obligations arise when
the asset is acquired or constructed.

The allocation of expenditure includes direct and indirect costs. Indirect costs are included
only if they can be directly attributed to the area of interest. These may include items such
as road construction costs and costs to ensure conformity with environmental regulations.
The costs associated with re-working engineering design errors or those attributed to
inefficiencies in development should not be capitalised.

General or administrative overheads relating to the whole entity, rather than to specific
phases of operations, are expensed as they are incurred. Charges for the time of head
office staff may be capitalised where there is a clear and direct allocation of their time to
specific development activities.

Entities should also consider the extent to which “abnormal costs” have been incurred to
develop the asset. SFAS 216 requires that the cost of abnormal amounts of labour or other
resources involved in constructing an asset should not be included in the cost of that asset.
Entities will sometimes encounter difficulties with their mining plans and make adjustments
to them, entailing associated costs, and entities should develop a policy on how such costs
will be assessed as being normal or abnormal.

Expenditure incurred after the point at which commercial production has commenced
should only be capitalised if the expenditure meets the asset recognition criteria.

Pre-Production Sales

There may be a long commissioning period for a mine, sometimes longer than twelve
months, during which production gradually increases towards its design capacity. An entity
may receive revenue from the saleable material produced during this phase. Where test
production is considered necessary for the completion of the asset, the proceeds from the
sale and the cost to produce the material should be recognised in the profit or loss.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 131

 6.3 Production

Revenue Recognition

Mining companies in Indonesia apply SFAS 115, “Revenue from Contracts with Customers”
to determine the timing and amount of revenue that can be recognised for the sale of
goods and services. SFAS 115 is adapted from IFRS 15, “Revenue from Contracts with
Customers”. The revenue recognition model under SFAS 115 emphasises the satisfaction
of the performance obligations identified in a contract with customers for a seller to
recognise revenue. Entities apply a five-step approach to determine when and how much
revenue can be recognised:

STEPS

1 Identify the contract with the customer;

2 Identify the separate performance obligations in the contract;

3 Determine the transaction price;

4 Allocate the transaction price to the separate performance obligations; and

5 Recognise revenue when (or as) the performance obligation is satisfied.

Entities need to exercise judgment when considering the terms of contracts and all of the
facts and circumstances, including any implied contract terms. Revenue recognition can
present challenges for mining entities, so they need to analyse the facts and circumstances
in order to determine when and how much revenue to recognise. Extracted mineral ores
may need to be moved long distances, and may need to be of a specific type in order to
meet the smelter or refinery requirements. Entities may exchange products in order to meet
logistical, scheduling, or other requirements.

Some common challenges relating to revenue recognition in the mining industry are as
follow:

a. Agency Relationships: Principal versus agent considerations

Mining entities will often engage in other activities in addition to selling extracted ore,
such as the transportation of products. It is important to identify whether a mining
entity is acting as a principal or an agent in transactions as it is only when the entity is
acting as a principal that it will be able to recognise revenue based on the gross amount
received, or a receivable in respect of its performance under a sales contract. Entities
acting as agents do not recognise revenue for any amounts received from a customer
to be paid to the principal. Revenue is recognised for any commission or fee earned
for facilitating the transfer of goods and services. Whether the entity is acting as an
agent or principal depends on the facts of the relationship, which can require the use of
significant judgment.

An entity is the principal in an arrangement if it obtains control of the goods or

services of another party before then transferring control of those goods or services
to the customer. Obtaining title momentarily before transferring a good or service to a
customer does not necessarily constitute control.

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 An entity is an agent if its performance obligation is solely to arrange for another party
to provide the goods or services. Indicators that the entity is an agent include the
following:
• The other party is primarily responsible for the fulfilment of the contract;
• The entity does not have inventory risk;
• The entity does not have latitude to set prices;
• The entity does not bear customer credit risk; and
• The entity’s consideration is in the form of a commission.

An agent recognises revenue arising from the commission or fees earned for facilitating
the transfer of goods or services. Its consideration is the “net” amount retained after
paying the principal for the goods or services provided to the customer.

b. Delivery – Cost, Insurance and Freight (CIF) versus FoB

An entity will recognise revenue when (or as) a good or service is transferred to the
customer, and the customer obtains control of that good or service. Control of an
asset refers to an entity’s ability to direct the use of and obtain substantially all of the
remaining benefits (that is, the potential cash inflows or savings in outflows) from the
asset.

Resources are often extracted from remote locations, and require transportation over
significant distances. Transportation by truck instead of by rail can be a significant
cost. There are two main types of contracts for future shipping costs – CIF and FOB.

CIF contracts mean that the selling entity will have responsibility for paying costs,
insurance and freight until the goods reach a final destination, such as a refinery or an
end user. FOB contracts, on the other hand, mean that the selling entity is deemed to
have delivered the goods when the goods are delivered to an independent carrier. The
buyer has to bear all of the costs and risks of loss pertaining to the goods from that
point.

Under both approaches, the contractual terms mean that risk and title (and therefore
control) of the commodity normally pass at the ship’s rail, although the timing of
revenue recognition could change under the new standard, depending on the terms of
trade. The difference between the shipping terms affect which party is responsible for
freight costs.

Sales of goods
An entity recognises revenue when it satisfies a performance obligation by transferring
a promised good or service to a customer. Revenue is recognised at the point when
control is transferred to the customer. Under CIF and FOB terms, this will generally
follow the terms of the contract, usually when goods pass the rail on a vessel that has
been selected by the buyer, at which point the buyer will control the goods.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 133

 Transportation
SFAS 115 requires an entity to account for each distinct good or service as a separate
performance obligation. Freight or transportation services may meet the definition
of a distinct service. A performance obligation for transportation generally meets
the criteria for a performance obligation that is settled over a period of time, and
the revenue will be recognised over the period of the transfer to the customer. If a
performance obligation does not meet the criteria, it will be settled at a future point in
time, and revenue will likely be recognised when the customer receives the goods.

Factors that might indicate the existence of a separate performance obligation for
transportation include the following:
• The specialism of any of the vehicles or technology involved with providing
transportation;
• The cost, distance or time associated with providing the transportation; and
• Whether the terms of the contract allow the customer to opt out of the
transportation services and collect the commodity themselves.

c. Provisional Pricing Arrangements

Sales contracts for commodities often incorporate provisional pricing, which might arise
for a number of reasons:
• The time taken to transport the product might mean that the customer wishes to
pay the market price at the date of eventual delivery to the final destination – in
such situations, a provisional price is charged on the date at which control of the
product is initially transferred. The final price is generally an average market price
for a particular future period, or a final assayed amount.
• The product is being transported in concentrated form, and the final quality and
volume of component commodities will not be known until further processing at
its final destination.

Revenue will be recognised when the performance obligation is satisfied, which is when
the customer obtains control of the product. The entity will also need to determine the
transaction price, which is the amount of consideration to which it expects to be entitled
for the transaction. Management should first consider whether provisionally priced
contracts include embedded derivatives that are within the scope of the guidance on
financial instruments. A mining entity will apply the separation and/or measurement
guidance in other standards first, and then apply the guidance in the revenue standard
to the remaining portion of the contract.

The transaction price might be variable or contingent on the outcome of future events,
which would include provisional pricing arrangements. Variable consideration is subject
to a constraint. The objective of the constraint is that an entity should recognise revenue
through the performance obligations being satisfied, to the extent that a significant
revenue reversal is not “highly probable”, in future periods. Such a reversal would occur
if there were a significant downward adjustment to the cumulative amount of revenue
recognised for that performance obligation. Judgment will be required to determine
whether the amount to be recognised is subject to a significant reversal. SFAS 115 has
a list of factors that could increase the likelihood or magnitude of a revenue reversal.
Management’s estimate of the transaction price will be reassessed at the end of each
reporting period.

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d. Take-or-pay and similar long-term supply agreements

Long-term sales contracts are common in the mining industry. Producers and buyers
may enter into sales contracts that are often a year or longer in duration, to secure
supply and reasonable pricing arrangements. Contracts will typically stipulate the sale
of a set volume of product over the period, at an agreed price. There are often clauses
within the contract relating to price adjustments, or to escalation over the course
of the contract to protect the producer and/or the seller from significant changes to
the underlying assumptions at the time when the contract was signed. Long-term
commodity contracts frequently offer the counterparty flexibility and options in relation
to the quantity of the commodity to be delivered under the contract.

Mining entities should continue to first assess whether these arrangements represent
financial instruments, or contain embedded derivatives that should be accounted
for under the standards on financial instruments (e.g., they should assess whether
a contract with volume flexibility contains a written option that can be settled net,
either in cash or using another financial instrument). In addition, mining entities should
continue to evaluate whether such arrangements convey the right to use a specific
asset, and therefore constitute a lease under the leasing standards.

In relation to take-or-pay contracts, only the minimum amount specified would

generally be considered a contract, as this is the only enforceable part of the
agreement. Options in the contract to acquire additional volumes will likely be
considered as separate contracts at the time when the customer exercises the option,
unless such options provide the customer with a material right (e.g. an incremental
discount). Where there is a material right, the option should be accounted for as a
separate performance obligation in the original contract. This will require the total
transaction price to be allocated to the individual performance obligations, using
standalone selling prices.

Customers may not exercise all of their contractual rights to receive a good or a
service in the future. Unexercised rights are often referred to as breakage. An entity
should recognise estimated breakage as revenue in proportion to the historical pattern
of exercised rights. Management might not be able to determine whether there will
be any breakage, or the extent of such breakage. In this case, they should consider
the constraints on variable consideration, including the need to record any minimum
amount of breakage. Breakage that is not expected to occur should be recognised as
revenue when the likelihood of the customer exercising its remaining rights becomes
remote. The assessment should be updated at the end of each reporting period.

For take-or-pay arrangements, this may mean that an entity may be able to recognise
revenue in relation to breakage amounts in a period earlier than when such breakage
occurs, provided it can demonstrate that the customer is not expected to exercise
these rights. Given the nature of these arrangements and the inherent uncertainty in
predicting a customer’s behaviour, it may be difficult to satisfy this requirement.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 135

 Stripping Costs During the Production Phase

An entity usually obtains two kinds of benefits from its stripping activity. These are the
extraction of ore in the current period in the form of inventory and improved access to the
ore body for future periods. As a result, two different kinds of assets are created. If stripping
activity in the current period does not provide an identifiable benefit, the associated costs
are expensed in the current period.

To the extent that the benefits of stripping activity are realised in the form of inventory
produced, the associated costs are recorded in accordance with the principles of SFAS
202: "Inventory".

To the extent that the benefits are realised in the form of improved access to the ore body
in the future, the associated costs are recognised as a “stripping activity asset” if all of the
following conditions are met:
a. It is probable that the future economic benefit associated with the stripping activity will
flow to the entity;
b. The entity can identify the component of the ore body to which access has been
improved; and
c. The costs relating to the stripping activity associated with that component can be
measured reliably.

Identifying components of the ore body is a complex process which requires the use of
management’s judgment. It might be difficult separately to identify the costs of producing
inventory and the costs of improving access to the ore body. In such cases, costs are
allocated between the inventory produced and the stripping activity asset using a relevant
production measure. The allocation of costs cannot be based on a sales measure.

Stripping assets are initially measured at cost, and then subsequently measured at cost less
depreciation, amortisation and impairment losses. While rare in practice, stripping activity
assets may also be carried at revalued amounts if the existing asset of which it is a part is
carried at its revalued amount. A stripping activity asset is typically depreciated based on
the Units of Production (UoP) method, unless another method is more appropriate.

Photo source: PT Bukit Asam Tbk

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Leases

Mining companies in Indonesia apply SFAS 116, “Leases” which is adapted from IFRS
16, “Leases”. The SFAS 116 model requires lessees to capitalise nearly all of the leases
on the balance sheet to reflect the right to use an asset for a period of time, as well as the
associated liability for payments to use the asset, except for certain short-term leases for a
period of less than twelve months and leases of low-value assets.

Mining companies will need to carefully consider all of the major arrangements they have
entered into that may increase both the assets and liabilities on the balance sheet under the
lease standard such as mining equipment, vehicles, land and buildings. Similarly, mining
contractor companies will need to consider all of the major arrangements they have entered
into, such as leases of construction equipment and vehicles, as well as land and buildings,
that may give rise to balance sheet lease accounting under the current leases standard.

Determining whether a contract contains a lease

SFAS 116 prescribes that a contract contains a lease when:

a. There is an identified asset; and
b. The contract conveys the right to control the use of the identified asset for a period of
time in exchange for consideration.

An asset can be identified implicitly or explicitly in the contract. A contract may explicitly
define a particular asset, or it may do so implicitly when the supplier can fulfil the contract
only through the use of a particular asset. The right to substitute an asset if it is not
operating properly, or if a technical update is required, does not prevent the contract from
being dependent on an identified asset.

The definition of a lease is now driven to a greater degree by the question of which party to
the contract controls the use of the underlying asset for the period of its use. A customer
needs to have the right to obtain substantially all of the benefits from the use of the asset
(the “benefits” element), while also having the ability to direct the use of the asset (the
“power” element).

The right to control the use of an identified asset is the key distinguishing factor, because
under a lease the customer has control over the right to use the identified asset, whereas
under a simple supply contract, the supplier retains control over the use of the particular
asset. The key question is thus which party (customer or supplier) has the right to direct
how and for what purpose the identified asset is used throughout the contract period. SFAS
116 gives several examples of relevant decision-making rights:
a. The right to change what type of output is produced;
b. The right to change when the output is produced;
c. The right to change where the output is produced; and
d. The right to change how much of the output is produced.

This list is not exhaustive and none of the above criteria are mutually exclusive, meaning
that there is no threshold to determine whether any of the criteria are more important than
the others. The relevance of each of the decision-making rights depends on the underlying
asset being considered.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 137

 The flowchart below summarises the analysis that needs to be performed to determine
whether a contract contains a lease:

No
Is there an identified asset?

Yes

Does the customer have the right to obtain substantially all of No

the economic benefits from the use of the asset throughout
the period of use?

Yes

Who has the right to direct how and for what purpose the
asset is used throughout the period of use?

Customer Predetermined Supplier

Customer
Yes • operates the asset or No
• has designed the
asset?

Contract contains a lease Contract does not contain a lease

Photo source: PT Bukit Asam Tbk

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Lease Accounting for a Lessee

Initial recognition

The lease liability is initially capitalised on the commencement date of the lease, and
measured at an amount equal to the present value of the lease payments during the lease
term that have not yet been paid. The value of the right-of-use of the asset is equal to the
lease liability at the commencement of the lease, plus any direct costs incurred to obtain the
contract and any contractually obligated restoration costs.

The lessee uses as its discount rate the interest rate implicit in the lease. If this rate cannot
be readily determined, the lessee should instead use its incremental borrowing rate.

Lease payments
Lease liability
Discount rate

Lease payments made before or at

the commencement date

Restoration costs Provision

Initial direct costs

Subsequent measurement

The lease liability is measured in subsequent periods using the effective interest rate method.

The right-of-use asset is depreciated in accordance with the requirements set out in SFAS
216, “Property, Plant and Equipment”, meaning depreciation on a straight-line basis or
using another systematic basis that is more representative of the pattern by which the entity
expects to consume the right-of-use asset.

The combination of straight-line depreciation of the right-of-use asset and the effective
interest rate method applied to the lease liability results in a decreasing total lease expense
across the lease term. This effect is sometimes referred to as frontloading.

Lease expenses Profit/loss

Amortisation Revenue
Interest expenses Total lease expenses
Total expenses Profit/loss

1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10

Mining in Indonesia: Investment, Taxation and Regulatory Guide 139

 The carrying amount of the right-of-use asset and the lease liability will no longer be equal
in subsequent periods. Due to the frontloading effect described above, the carrying amount
of the right-of-use asset will, in general, be below the carrying amount of the lease liability.

Lease liability Right-of-use asset

Interest
expense

Repayment

Depreciation

Initially Subsequently Initially Subsequently

Any subsequent change in the measurement of the provision for the restoration costs, due
to a revised estimation of expected costs, typically results in an adjustment to the ‘right of
use’ asset.

Lease Accounting for a Lessor

The accounting for leases by a lessor is practically the same under SFAS 116 as it was
previously under SFAS 30. The lessor still has to classify leases as either finance or
operating, depending on whether substantially all of the risks and rewards incidental to the
ownership of the underlying asset have been transferred. For a finance lease, the lessor
recognises a receivable at an amount equal to the net investment in the lease, which is
the present value of the aggregate of the lease payments receivable by the lessor and any
residual value not covered by guarantees. If the contract is classified as an operating lease,
the lessor continues to present the underlying assets.

Photo source: PT Bukit Asam Tbk

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6.4 Closure and Rehabilitation
The mining industry can have a significant impact on the environment. Closure or
environmental rehabilitation work at the end of the useful life of a mine or installation may
be required by law, the terms of operating licences or an entity’s stated policy and/or past
practice.

An entity that promises to remedy damage or that has done so in the past, even when there
is/was no legal requirement to do so, may have created a constructive obligation and thus a
liability under SFAS. There may also be environmental clean-up obligations related to the
contamination of land arising during the operating life of the mine or installation. The
associated costs of remediation/restoration may be significant. The accounting treatment of
closure and rehabilitation costs is therefore critical.

A provision is recognised when an obligation to perform the rehabilitation exists. Local

legal regulations should be taken into account when determining the existence and extent
of the obligation. An obligation might arise if an entity has a policy and a past practice
of performing rehabilitation activity. A provision is recorded if others have a reasonable
expectation that the entity will undertake the restoration. Obligations to decommission
or remove an asset are created at the time when the asset is put in place. Mining
infrastructure, for example, must be removed at the end of its useful life, typically upon the
closure of the mine.

Closure provisions are updated at each balance-sheet date to reflect changes in the
estimates of the amount or timing of future cash flow and changes in the discount rate.
Changes to provisions related to the removal of an asset are added to or deducted from
the carrying amount of the related asset in the current period. However, adjustments to the
asset are restricted. The asset cannot decrease below zero, and cannot increase above its
recoverable amount:
• If the decrease in the provision exceeds the carrying amount of the asset, the excess is
recognised immediately in the profit or loss; and
• Adjustments that result in an addition to the cost of the asset are assessed to determine
whether or not the new carrying amount is fully recoverable or not. Impairment testing is
required if there is an indication that the asset may not be fully recoverable.

The accretion of discounts on a closure liability is recognised as part of finance expenses in

profit or loss.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 141

 Additional
7 regulatory
considerations for
mining investments
Investment Law

Law No. 25/2007, as amended by the Job Creation Law (the

“Investment Law”) is the prevailing law that generally regulates
investments in Indonesia, and serves as the legal basis for the
provision of an integrated one-stop service to simplify business
licensing. The Government also recently introduced the OSS system
to enable investors to expedite the process of obtaining business
licences.

Upon the issuance of the Job Creation Law, the Government set out a
new investment principle under which all business sectors are basically
open to foreign investment, except for those: (i) who are explicitly
stipulated to be fully restricted for foreign investment; and (ii) for
which investment may only be carried out by the Central Government.
Under Presidential Regulation No. 10 of 2021 on Investment Business
Fields, (as most recently amended by Presidential Regulation No.
49/2021) (“Perpres No. 10/2021”), several mining commodities have
been prioritised to obtain fiscal and non-fiscal incentives so long as
they meet certain requirements. It should also be noted that, pursuant
to Perpres No.10/2021 and Regulation of BKPM No. 4 of 2021 on
the Guidelines and Procedures for Risk-Based Business Licensing
Services and Investment Facilities (“BKPM Regulation No. 4/2021”),
foreign investors can only conduct businesses in the large-scale
business category if they fulfil the minimum IDR 10 billion investment
value (excluding land and buildings) per business sector per project
location24.

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Photo source: PT Vale Indonesia Tbk

Mining in Indonesia: Investment, Taxation and Regulatory Guide 143

 The obligations for Limited Liability companies set out in the Investment
Law include:
• Prioritising the use of Indonesian manpower;
• Creating a safe and healthy working environment;
• Implementing good corporate governance principles;
• Providing regular investment reports and submitting such reports to
the BKPM;
• Creating a healthy business competition environment, anticipating
any monopolistic practices, or other aspects that may be harmful to
the state;
• Complying with all of the prevailing laws and regulations;
• Implementing CSR; and
• Environmental conservation.

Specifically, the Investment Law provides that investors exploiting non-

renewable natural resources must also allocate funds in stages for site
restoration, in line with the applicable environmental standards. Sanctions
for non-compliance with certain aspects of the Investment Law (including
those regarding CSR) include the restriction, suspension, or revocation of
business activities and licences.

The Central Government provides protection against nationalisation,

unless such nationalisation is required by law, in which case the Central
Government will provide compensation based on the market value. In
addition, investors are given the right freely to transfer and repatriate
foreign currency, in forms including capital, profits, bank interest, royalties,
dividends, loan repayments, sales proceeds, the liquidation of investment
proceeds, compensation for losses, compensation for acquisitions,
management fees and technical service fees.

Forestry Law

Indonesia has resource-rich soil, which hosts extensive forest resources.

The use of these forest resources is strictly controlled by the Central
Government, especially protected forests. It is common for mining
concession areas to overlap with forestry areas (either protected or
productive forests), meaning that mining activities can be impacted by
the rules applicable to such forests.

Law No. 41 of 1999 on Forestry, as amended by Law No. 19/2004, and

the Job Creation Law and as partially revoked by Law No. 18 of 2013
on the Prevention and Eradication of Forest Destruction (the “Forestry
Law”), allows for 13 open-pit mines in protected forests, provided that
the respective mining companies had signed their contracts prior to
the introduction of the Forestry Law (as governed by and listed under
Presidential Decree No. 41 of 2004 on Licensing or Agreement within the
Mining Sector Located in Forest Areas, as most recently amended by
Presidential Decree No. 3/2023).

Under Government Regulation No. 23 of 2021 on the Organization

of Forestry (“GR No. 23/2021”), the utilisation of Forest Areas for

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non-forestry activities (including mining) is permitted in both production forest areas
and protected forest areas, subject to obtaining a Forest Area Utilisation Approval from
the Ministry of Environment and Forestry. “Protected forest” areas are open for mining
activities, provided that mining is conducted in the form of underground mining (and not
through an open pit), subject to a number of conditions.

For areas that are designated as production forest areas, both underground and open pit
mining are permitted. Mining is prohibited in areas designated as conservation forest areas.

GR No. 23/2021 requires holders of Forest Area Utilisation Approval to implement the
demarcation of the forest area use within 1 (one) year, failure to complete which shall
render the Forest Area Utilisation Approval null and void and declared invalid. On top of
that, holders of Forest Area Utilisation Approval shall pay a certain amount of: (i) PNBP for
Forest Area Use, if located in a province where the adequacy of its forest areas has been
exceeded, or (ii) PNBP as Forest Area Use and PNBP for compensation if located in a
province with inadequate forest areas. Forest Area Utilisation Approval holders must also
carry out reclamation and/or reforestation in forest areas that are no longer used.

Energy Law

Given the importance of energy resources, it is necessary for the Central Government to
create an energy management plan to ensure that the national energy needs can be met in
the long term. Law No. 30/2007 (the “Energy Law”) established the National Energy Council
as the government body responsible for designing and formulating national energy policy,
setting the national energy general plan, determining the steps to be taken in an energy
crisis and in emergency conditions, and monitoring the implementation of government
policy in energy fields which are cross-sectoral in nature.

The Government of the Republic of Indonesia recently issued Government Regulation

No. 33 of 2023 on Energy Conservation (“GR No. 33/2023”) in order to preserve domestic
energy resources and increase the efficiency of their utilisation. Central Government
believes that it is necessary to make efforts to implement energy conservation by
expanding the scope of energy users and energy sources, lowering the threshold of energy
consumption, and developing energy conservation service businesses. The conservation of
energy resources shall be setting out:
a. Prioritising the energy resources to be exploited and/or provided;
b. The amount of energy resources that can be produced; and
c. Limitations on energy resources which cannot be exploited within a certain time limit.

Photo source: PT Agincourt Resources

Mining in Indonesia: Investment, Taxation and Regulatory Guide 145

 In light of the above, the MoEMR has identified certain critical mineral commodities,
which include, among others, nickel, tin, copper, iron, and another 43 (forty-three) type of
mineral commodities based on MoEMR Decree No. 296.K/MB.01/MEM.B/2023 on The
Determination of the Types of Commodities Included in the Critical Mineral Classification.
The determination of these critical mineral commodities may be used by ministries/
agencies and provincial governments to:
a. Make governance arrangements for the mineral mining industry and associated
minerals businesses, including residual processing and/or refining products;
b. Issue regulations on the trading system for the mineral mining industry and its
associated minerals businesses, including residual processing and/or refining products;
c. Be a consideration when setting fiscal policy in the mineral and coal mining sector;
d. Be a consideration when setting the reference mineral price formula;
e. Be a consideration in the policy of prioritising minerals for domestic needs;
f. Be a consideration in issuing business permits in the mineral and coal mining sector;
g. Be taken into consideration when seeking to stimulate investigation and research; and/
or
h. Be a consideration when increasing the obligation of business permit holders in the
minerals and coal mining sector to carry out further exploration.

The determination of critical mineral commodities is valid for 3 (three) years and can be
reviewed annually or at any time if necessary.

Environmental Laws and Regulations

There is a difficult balance to strike between protecting the environment and preserving
natural resources, on the one hand, and maintaining a viable mining industry, on the
other. Environmental protection in Indonesia is governed by various laws, regulations,
and decrees, with non-compliance leading to fines, penalties and, in extreme cases, the
revocation of licences and/or permits and imprisonment.

Law No. 32 of 2009 on the Protection and Management of the Environment as amended
by the Job Creation Law (the “Environmental Law”) requires the Central Government and
regional governments to prepare a strategic environmental analysis, and to ensure that the
principles of sustainable development have been integrated into the development of each
particular region.

Both the Mining Law and the Environmental Law require mining companies that are
exploiting natural resources and that have an environmental or social impact to create and
maintain an environmental impact assessment (Analisis Mengenai Dampak Lingkungan
or “AMDAL”), which should consist of an environmental impact assessment, an
environmental management plan, and an environmental monitoring plan. Environmental
management effort documents, Environmental Management Efforts (Upaya Pengelolaan
Lingkungan or “UKL”) and Environment Monitoring Efforts (Upaya Pemantauan Lingkungan
or “UPL”) generally need to be prepared in situations where an AMDAL document is not
required. Furthermore, pursuant to the Environmental Law, mining companies must obtain
an Environmental Approval. The Environment Feasibility Decree (Keputusan Kelayakan
Lingkungan Hidup) which approves the AMDAL document, shall serve as an Environmental
Approval. The Environmental Law stipulates that the Environment Feasibility Decree is a
requirement for obtaining a business licence.

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 Photo source: PT Bukit Asam Tbk

The sanctions applied for breaches of the Environmental Law range from three to fifteen
years of imprisonment and/or a fine of between IDR 100 million and IDR 750 million
(potentially up to IDR 9 billion in certain cases). The Environmental Law also stipulates the
minimum penalties applicable, depending on the nature of the breach.

The environmental quality requirements regarding emissions and wastewater temperature

levels have been the subject of industry concern, due to the time lag necessary to
implement new processes and technologies, and the increased production costs.

Central Bank of Indonesia Regulation on the Reporting of Foreign

Exchange Trading

BI Regulation No. 16/22/PBI/2014 regarding the Reporting of Foreign Exchange Trading

and the Reporting of the Application of Prudential Principles to Foreign Loan Administration
for Non-Bank Corporations (as partially revoked by BI Regulation No. 21/2/PBI/2019) (the
“BI Regulation No. 16/22/PBI/2014”), includes a requirement for companies to report their
foreign currency loans to BI on a quarterly basis. Furthermore, the fourth quarterly report
each year needs to be verified by an independent public accountant. Failure to comply with
this reporting obligation will result in an administrative sanction of IDR 10 million.

In January 2019, BI Regulation No. 21/2/PBI/2019 regarding the Reporting of Foreign

Exchange Trading was issued to revoke certain provisions of BI Regulation No. 16/22/
PBI/2014 (the “BI Regulation No. 21/2/PBI/2019”). The final provision of BI Regulation No.
21/2/PBI/2019 stipulated that, from the effective date of BI Regulation No. 21/2/PBI/2019
(i.e. 1 March 2019), the provisions in BI Regulation No. 16/22/PBI/2014 that regulated
the reporting of foreign exchange trading would be revoked. All laws and regulations that
constitute implementing regulations of BI Regulation No. 16/22/PBI/2014 shall remain
effective insofar as they do not conflict with BI Regulation No. 21/2/PBI/2019.

The prudential principles under BI Regulation No. 16/21/PBI/2014 (as amended by BI

Regulation No. 18/4/PBI/2016) and BI Circular Letter No. 16/24/ DKEM of 2014 (as
amended by BI Circular Letter No. 17/18/ DKEM of 2015 and BI Circular Letter No. 18/6/
DKEM of 2016) are as follow:
a. A minimum hedging ratio of 25% of the negative difference between foreign exchange
assets and foreign exchange liabilities that will be due within three months, and that
will be due between three and six months from the end of the reporting quarter. Only
companies that have a “negative difference” of more than USD 100,000 are required to
fulfil the minimum hedging ratio;
b. A minimum liquidity ratio of 70%, calculated by comparing the company’s foreign
exchange assets and foreign exchange liabilities that will be due within three months of
the end of the reporting quarter; and
c. A minimum credit rating of “BB-” or equivalent from the credit ratings agencies
recognised by Central Bank of Indonesia.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 147

 Listing Rules for Mining Companies

Pursuant to the issue of IDX Decision No. KEP-00100/BEI/10-2014, the listing rules for mining
(minerals and coal) companies have been simplified. The rules cover mining companies (and
prospective mining companies) that have a mining business licence, or holding companies that
(or that will) consolidate 50% of a mining subsidiary’s income, where the mine:
• Has commenced sales; or
• Is already in the production phase but has not commenced sales; or
• Is not yet in the production phase.

To qualify for listing, prospective issuers must fulfil the following conditions (among
others):
• Net tangible assets and deferred exploration costs must be at least IDR 100 billion for listing
on the Main Board, or IDR 5 billion for listing on the Development Board;
• One or more of the company’s directors must have technical expertise and at least five
years’ work experience in the mining sector within the past seven years;
• The issuer must maintain proven and probable reserves that have been certified by a
competent authority (in some other jurisdictions, this is referred to as either a “Competent
Person’s report” or a “Qualified Person’s report”);
• The issuer must have a clean and clear certificate; and
• The issuer must have undertaken a feasibility study within three years of the date when the
listing request is submitted. Other requirements are detailed in the IDX Regulations. Mineral
and coal companies with shares listed on the IDX before the issuance of this decision
should have fulfilled the requirements regarding the directors’ qualifications by 1 July 2015.

In respect of the requirement to have a clean and clear certificate, please note that this clean
and clear certificate is no longer required, as regulated under PerMen 7/2020. However, at
the time of writing, IDX Decision No. KEP-00100/BEI/10-2014 had not yet been amended to
comply with PerMen 7/2020.

148 PwC
Central Bank of Indonesia Regulation on the Obligation to Use the Rupiah
Currency
BI Regulation No. 17/3/PBI/2015 on the Obligation to Use the Rupiah Currency for
Transactions in Indonesia has been effective since 1 July 2015 (“BI Regulation 17/2015”),
with the stated aim of stabilising the Rupiah exchange rate.

BI Regulation 17/2015 stipulates that all parties shall be obligated to use the Rupiah in
transactions within the territory of Indonesia. Such transactions include any transaction
having the purpose of a payment, the settlement of obligations using money, and/or other
financial transactions.

Pursuant to BI Regulation 17/2015, the mandatory use of the IDR shall not apply to the
following transactions:
a. Certain transactions within the framework of implementing state revenue and
expenditure;
b. Acceptance or disbursement of grants from or to overseas;
c. International trade transactions, covering:
• Exports and/or imports of goods to or from outside the customs territory of the
Republic of Indonesia; and/or
• Services trading activities that cross the state’s territorial borders, conducted by way
of:
i. Cross border supply; and
ii. Consumption abroad;
d. Savings at banks in the form of foreign exchange;
e. International financing transactions; or
f. Transactions in a foreign currency conducted pursuant to the provisions of the Law.

Photo source: PT Bukit Asam Tbk

Mining in Indonesia: Investment, Taxation and Regulatory Guide 149

 The press release for BI Regulation 17/2015 states that the MoEMR and BI will form a
task force to facilitate the implementation of the regulation to ensure that it does not
affect ongoing business activities. In addition, the MoEMR and BI will issue guidelines
for the implementation of BI Regulation 17/2015 for the energy sector. At the time of
writing, however, no guidelines had been issued by either the MoEMR or BI to regulate the
procedures for the implementation of the BI Regulation in the minerals and coal mining
sectors. In general, BI has issued BI Circular Letter Number 17/11/ DKSP 2015 concerning
the Obligation to Use the Rupiah in the Territory of the Unitary State of the Republic of
Indonesia. Nevertheless, other than the types of transactions exempted from the obligation
to use the IDR, BI Regulation 17/2015 mentions that strategic infrastructure projects may
also be exempt from using the Rupiah, with prior BI approval. To apply for BI approval, the
requesting party must first obtain a confirmation or support letter from the relevant ministry
or government body.

Based on Circular Letter of the Ministry of Energy and Mineral Resources No: 04.E/30/
DJB/2017 concerning the Exceptions to and Postponement of the Enforcement of BI
Regulation 17/2015, in order effectively to use the Rupiah so as not to hinder transactions
in the mineral and coal mining sector, BI has granted the following approvals:
a. Exceptions to the implementation of the mandatory use of the IDR for three types of
transactions representing the implementation of the State Budget, namely payments of
fixed fees, payments of Royalty or Coal Production Results, and payments of an annual
lump sum or PBB and Regional Taxes;
b. Exceptions to the implementation of the mandatory use of the IDR for two types of
transactions which shall refer to the prevailing laws and regulations, namely payments of
reclamation guarantees and payments of post-mining guarantees;
c. Postponement of the implementation of the mandatory use of IDR in the form of the use
of foreign currency quotes and payments in Rupiah for ten types of transactions related
to mineral and coal mining business activities;
d. Postponement of the implementation of the mandatory use of the IDR in the form of
the use of foreign currency quotes and payments in foreign currency or IDR for one
type of transaction, namely domestic sales of minerals and coal from the concession
holder to the holder of a Production Operation Mining Business Licence specifically for
transportation and sales, or to the holder of a Production Operation Mining Business
Licence specifically for processing and refining intended for export. Specifically for
such transaction, business actors are required to submit a written application to BI
accompanied by supporting documents evidencing their export sales activities, namely
the Customs Identification Number (Nomor Identitas Kepabeanan or “NIK”) and the latest
PEB.

The stated period of postponement of the implementation of the mandatory use of IDR
is given until 23 February 2026, and during that period, BI will monitor the readiness of
minerals and coal industry players to implement the mandatory use of IDR.

The holders of CoWs, CCoWs and business licences in the fields of mineral and coal mining
are directed to use the Jakarta Interbank Spot Dollar Rate (JISDOR) exchange rate as a
reference when calculating the Rupiah prices of goods and/or services originally offered in
foreign currencies.

150 PwC
Other Regulations Related to Mining Operations

Other regulations applicable to Indonesian mining operations include regulations regarding

land acquisition, the use of groundwater, the technical guidelines for controlling air pollution
from fixed sources, water quality and pollution, waste management and storage, electricity
for private use, use of heavy equipment, regulations on used oil, and the storage of
production chemicals. Non-compliance may lead to fines, penalties, and, in extreme cases,
the revocation of licences or permits.

CSR

Contractors are required to comply with the relevant laws and regulations on CSR and
Community Development.

Under Article 74 of Law No. 40 of 2007 on Limited Liability Companies (as amended by
the Job Creation Law) (the “Company Law”), companies carrying out natural resources
business must implement CSR, which must be budgeted for in the companies’ expenditure
plans. Failure to comply with the CSR obligation may be subject to sanctions. The
Company Law provides that CSR means a commitment by companies to participate in
sustainable economic development to increase the quality of lives and environment in the
interests of the company, local communities, and the general public.

Government Regulation No. 47 of 2012 on the Social and Environmental Responsibilities of

Limited Liability Companies (“GR 47/2012”) provides further provisions on CSR. Pursuant
to GR 47/2012:
i. CSR shall be implemented by the Board of Directors of the company based on the
company’s annual work plan, which includes the plan and budget for the implementation
of CSR, after obtaining the approval of the Board of Commissioners or General Meetings
of Shareholders in accordance with the company’s articles of association.
ii. The implementation of CSR shall be set out in the company’s annual report and delivered
to the General Meeting of Shareholders.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 151

 Appendices

Appendix A
Minimum in-country processing and refining
requirements for metal or minerals prior to export 149

Appendix B
Regional Taxes 155
Appendix C
Ministry of Energy and Mineral Resources
Organisational Structure 157
Appendix D
IMA (Indonesian Mining Association) 158
APBI-ICMA (Indonesian Coal Mining Association) 159
APNI (Asosiasi Penambang Nikel Indonesia) 160
Appendix E
Summary of CCoW generations 161
Summary of Mineral CoW Generations 167
Appendix F
About PwC 171
PwC Mining Contacts 173
Acknowledgements 174
More Insights 175

Photo source: PwC

152 PwC
 Appendix A

Minimum in-country processing and refining requirements for metal

minerals prior to export1
Commodity Minimum Limit

No Processing Refining
Ore Mineral
Products Quality Products Quality
1. Copper Chalcopyrite Copper ≥15% Cu Copper Cathode Copper Metal ≥ 99.9% Cu
(fusion Digenite Concentrates
Copper Telluride a. Copper Metal, Cu ≥
process) Bornite
99.9%;
Cuprite
b. Tellurium Metal, Te ≥
Covelitte
99%;
c. Tellurium Dioxide, TeO2
≥ 98%;
d. Tellurium Hydroxide, Te
(OH)4 ≥ 98%; and/or
e. Copper telluride alloy
Te ≥ 20%.
Copper Chalcopyrite - - Metal a. Copper Metal, Cu ≥
(leaching Digenite 99.9%;
process) Bornite b. Gold Metal, Aul ≥ 99%;
Cuprite c. Silver Metal, Ag ≥ 99%;
Covelitte d. Palladium Metal, Pd ≥
99%;
e. Platinum Metal, Pt ≥
99%;
f. Selenium Metal, Se ≥
99%;
g. Tellurium Metal, Te ≥
99%;
h. Tellurium Dioxide, TeO2
≥ 98%;
i. Tellurium Hydroxide,
Te(OH)4 ≥ 98%; and/or
j. Rare metals and rare
earth elements (refer
to the requirement for
rare-earth metal terms
for tin).
2. Nickel Pentlandite - - Nickel Matte, a. Ni Mate, Ni ≥ 70%;
and/or Garnierite Metal b. FeNi Metal, Ni ≥ 8%;
cobalt Serpentinite Alloys, Nickel c. Nickel Pig Iron (NPI)
(fusion Carolite Metal, and Metal 2% < Ni < 4%, and Fe
process) Oxide > 75%;
a. Saprolite d. Nickel Pig Iron (NPI), Ni
b. Limonite ≥ 4%;
e. Nickel Metal, Ni ≥ 93%;
and/or
f. Nickel Oxide (NiO), Ni ≥
65%.

1
Pursuant to the Regulation of the Minister of Energy and Mineral Resources of the Republic of Indonesia Number
25 of 2018 on Mineral and Coal Mining Businesses as amended by Regulation of the Minister of Energy and
Mineral Resources Number 17 of 2020.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 153

 Appendix A

Commodity Minimum Limit

No Processing Refining
Ore Mineral
Products Quality Products Quality
Nickel Pentlandite - - Metal, Metal a. Nickel Metal, Ni ≥ 93%;
and/or Garnierite Oxide, b. Mix Hydroxide
cobalt Serpentinite Metal Sulphide, Precipitate (MHP), Ni ≥
(leaching Carolite mix 25%;
process) hydroxide/ c. Mix Sulfide Precipitate
Limonite sulphide (MSP), Ni ≥ 45%;
precipitate, and d. Hydroxide Nickel
hydroxide nickel Carbonate (HNC), Ni ≥
carbonate 40%;
e. Nickel Sulfate and
Nickel Sulfate Hydrate
(NiSO4 and NiSO4.
xH2O), Ni ≥ 20%;
f. Cobalt Sulfate and
Cobalt Sulfate Hydrate
(CoSO4 and CoSO4.
xH2O) Co ≥ 19%;
g. Nickel Chloride and
Nickel Chloride Hydrate
(NiCl2 and NiCl2.xH2O),
Ni ≥ 20%;
h. Cobalt Chloride
and Cobalt Chloride
Hydrate (CoCl2 and
CoCl2.xH2O), Co ≥
19%;
i. Nickel Carbonate
(NiCO3), Ni ≥ 40%;
j. Cobalt Carbonate
(CoCO3), Co ≥ 40%;
k. Nickel Oxide (NiO), Ni ≥
65%;
l. Cobalt Oxide (CoO), Co
≥ 65%;
m. Nickel Hydroxide
(Ni(OH)2), Ni ≥ 50%;
n. Cobalt Hydroxide
(Co(OH)2), Co ≥ 50%;
o. Nickel Sulphide (NiS),
Ni ≥ 40%;
p. Cobalt Metal, Co ≥
93%
q. Cobalt Sulphide (CoS),
Co ≥ 40%; and/or
r. Chromium Metal, Cr ≥
99%.

154 PwC
 Appendix A

Commodity Minimum Limit

No Processing Refining
Ore Mineral
Products Quality Products Quality
Nickel - - Metal Alloys a. Sponge FeNi, 2% ≤ Ni
and/or < 4%, and Fe ≥ 75%;
cobalt b. Sponge FeNi, Ni ≥ 4%;
(fusion c. Luppen FeNi, 2% ≤ Ni
process) < 4%, and Fe ≥ 75%;
a. Saprolite d. Luppen FeNi, Ni ≥ 4%;
b. Limonite e. Nugget FeNi, 2% ≤ Ni
< 4%, and Fe ≥ 75%;
and/or
f. Nugget FeNi, Ni ≥ 4%.
3. Bauxite Gibbsite - - Metal Oxide/ a. Smelter Grade Alumina,
Diaspora Hydroxide and Al2O3 ≥ 98%;
Boehmite Metal b. Chemical Grade
Aumina, Al2O3 ≥ 90%;
c. Alumina Hydroxide,
Al(OH)3 ≥ 90%;
d. Proppants:
1) Al2O3 ≥ 72%
(Granulated);
2) Able to rupture at a
pressure of 7.500psi,
the size of the fraction:
-20+40 mesh ≤ 5.2%;
-30+50 mesh ≤ 2.5%;
or
-40+70 mesh ≤ 2.0%.
3) Apparent Specific
Gravity (ASG) 3.27.
and/or
e. Aluminum Metal, Al ≥
99%.
4. Iron Hematite Iron Fe ≥ 62% and Sponge, Metal, a. Sponge iron, Fe ≥ 72%;
Magnetite concentrates TiO2 ≤ 1% and b. Sponge ferro alloy, Fe ≥
*)
Metal alloys 72%;
Goethite Laterite iron Fe > 50% and c. Pig iron, Fe ≥ 75%;
Hematite concentrates (Al2O3 + SiO2) and/or
Magnetite **)
> 10% d. Ferro alloy, Fe ≥ 75%.
(Laterite iron)
Lamela Iron sand Fe ≥ 56% and Metal a. Sponge iron, Fe ≥ 72%;
magnetite- concentrates 1% < TiO2 ≤ and/or
ilmenite (iron ***)
25% b. Pig iron, Fe ≥ 75%.
sand)
Pellet Fe ≥ 54% and
iron sand 1% < TiO2 ≤
concentrates 25%
****)

Ilmenite ≥ 45% TiO2 Metal oxide, Metal a. Titanium Dioxide

concentrates chloride, and Synthetic, TiO2 ≥ 85%;
*****)
Metal alloys b. Titanium Tetrachloride,
TiCl4 ≥ 87%; and/or
c. Titanium metal alloy, Ti
≥ 65%.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 155

 Appendix A

Commodity Minimum Limit

No Processing Refining
Ore Mineral
Products Quality Products Quality
5. Tin Cassiterite - - Metal Tin Metal, Sn ≥ 99.90%
Zircon Refer to the Refer to the Refer to the requirements
concentrates requirements requirements for for zirconium and zircon.
for zirconium zirconium and
and zircon. zircon.
Ilmenite TiO2 ≥ 45% Metal oxide, Metal a. Refined Titanium
Concentrate chloride, and Dioxide, TiO2 ≥ 85%;
Metal alloys b. Titanium Tetrachloride,
TiCl4 ≥ 87%; and/or
c. Titanium metal alloy, Ti
≥ 65%.
Rutile TiO2 ≥ 90% Metal chloride and a. TiCl4 ≥ 98%; and/or
concentrates Metal alloys b. Titanium alloy ≥ 65%
Ti.
Monazite and - Metal Oxide, a. Rare earth metal oxide
xenotime Metal hydroxide, (REO) ≥ 99%;
concentrates and Rare Earth b. Rare earth metal
Metal hydroxide (REOH) ≥
99%; and/or
c. Rare earth metal ≥ 99%.
6. Manganese Pyrolusite Manganese Mn ≥ 49% Metal, Metal alloys a. Ferro Manganese
Psilomelane concentrates and Manganese (FeMn), Mn ≥ 60%
Braunite Chemical b. Silica Manganese
Manganite (SiMn), Mn ≥ 60%
c. Manganese Monoxide
(MnO), Mn ≥ 42%
MnO2 ≤ 4%;
d. Manganese Sulfate
(MnSO4) ≥ 90%;
e. Manganese Chloride
(MnCl2) ≥ 90%
f. Refined Manganese
Carbonate (MnCO3) ≥
90%;
g. Potassium
Permanganate (KMnO4)
≥ 90%;
h. Manganese Oxide
(Mn3O4) ≥ 90%;
i. Refined Manganese
Dioxide (MnO2) ≥ 98%;
j. Manganese Sponge
(Direct Reduced
Manganese) Mn ≥
49%, MnO2 ≤ 4%; and/
or
k. Electrolytic Manganese
Dioxide MnO2 > 90%
and K < 250 ppm.

156 PwC
 Appendix A

Commodity Minimum Limit

No Processing Refining
Ore Mineral
Products Quality Products Quality
7. Lead and Galena Zinc Zn ≥ 51% Metal and Metal a. Bullion Zinc, Zn ≥ 90%;
Zinc Sphalerite concentrates oxide/hydroxide b. Zinc Oxide, ZnO ≥
Smithsonite 98%;
Hemimorphite c. Zinc Peroxide, ZnO2 ≥
(chalamid) 98%; and/or
d. Zinc Hydroxide,
Zn(OH)2 ≥ 98%.
Gold Metal and/or a. Gold Metal, Au ≥ 99%;
silver and/or
b. Silver Metal, Ag ≥ 99%.
Lead Pb ≥ 56% Metal and Metal a. Bullion Lead, Pb > 90%;
concentrates oxide/hydroxide b. Lead Oxide, PbO ≥ 98%;
c. Lead Hydroxide,
Pb(OH)2 ≥ 98%; and/or
d. Lead Dioxide, PbO2 ≥
98%;
Gold Metal and/or a. Au Metal ≥ 99%; and/
silver or
b. Au Metal ≥ 99%.
8. Gold a. Native - - Gold Metal Gold Metal, Au ≥ 99%
b. Associated
minerals
9. Silver a. Native - - Silver Metal Silver Metal, Ag ≥ 99%
b. Associated
minerals
10. Chromium Chromite Chromite Cr2O3 ≥ 40% Metal, Metal a. Chromium Carbonate
concentrates and Fe ≥ 13% Alloys, and (Cr2(CO3)3), Cr ≥ 16%;
Chromium b. Chromium Sulfate
(Cr2(SO4)3), Cr ≥ 14%;
Chemical
c. Chromium Sulfite
(Cr2(SO3)3), Cr ≥ 28%;
d. Chromium Phosphate
(CrPO4), Cr ≥ 20%;
e. Chromium Nitrate
and Chromium Nitrate
Hydrate (Cr(NO3)3 and
Cr(NO3)3.xH2O), Cr ≥
12%;
f. Chromium Nitrite
(Cr(NO2)3, Cr ≥ 25%;
g. Chromium Hydroxide
(Cr(OH)3), Cr ≥ 47%;
h. Chromium Chlorate
(Cr(ClO3)2), Cr ≥ 16%;
i. Chromium Permanganate
(Cr(MnO4)), Cr ≥ 12%;
j. Chromium Metal, Cr ≥
99%; and/or
k. Chromium metal alloys,
Cr ≥ 60%.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 157

 Appendix A

Commodity Minimum Limit

No Processing Refining
Ore Mineral
Products Quality Products Quality
11. Zirconium - - Zircon chemical, a. Zirconium Oxychloride
zircon sponge, (ZOC), ZrOCl2.8H2O ≥
zirconia, zircon 90%;
b. Zirconium Sulfate (ZOS),
Metal, and
Zr(SO4)2.4H2O ≥ 90%;
hafnium c. Zirconium Basic Sulfate
(ZBS), Zr5O8(SO4)2.xH2O
≥ 90%;
d. Zirconium Basic
Carbonate (ZBC)
ZrOCO3.xH2O ≥ 90%;
e. Ammonium Zirconium
Carbonate (AZC),
(NH4)3ZrOH(CO3)3. 2H2O
≥ 90%;
f. Zirconium Acetate
(ZAC), H2ZrO2(C2H3O2)2
≥ 90%;
g. Kalium Hexafluoro
Zirconate (KFZ), K2ZrF6
≥ 90%;
h. Zirconium Sponge, Zr ≥
85%;
i. Zirconia (ZrO2+HfO2) ≥
99%;
j. Zirconium Metal, Zr ≥
95%; and/or
k. Hafnium Metal, Hf ≥ 95%.
Ilmenite TiO2 ≥ 45% Metal oxide, Metal a. Titanium Dioxide
chloride and Metal Synthetic, TiO2 ≥ 85%;
alloy b. Titanium Tetrachloride,
TiCl4 ≥ 87%; and/or
c. Titanium metals alloy,
Ti ≥ 65%.
Rutile TiO2 ≥ 90% Metal chloride and a. Titanium Tetrachloride,
Metal alloy TiCl4 ≥ 98%; and or
b. Titanium metals alloy,
Ti ≥ 65%.
12 Antimony Stibnite - - Antimony Metal a. Antimony Metal, Sb ≥
99%; and/or
b. Diantimony Pentaoxide,
Sb2O5 ≥ 95%.
Remarks:
*) This represents iron concentrates that contain hematite/magnetite minerals with an iron component of Fe ≥ 62%
and Titanium oxide compound concentration of TiO2 ≤ 1%.
**) This represents laterite iron concentrates that contain goethite/hematite/magnetite minerals with an iron
component of Fe ≥ 50% and alumina (Al2O3) and silica (SiO2) components of ≥ 10%.
***) This represents iron concentrates that contain lamella magnetite-ilmenite minerals with an iron component of Fe
≥ 56% and compound concentration Titanium oxide of 1% < TiO2 ≤ 25%.
****) This represents pellets iron sand concentrates that contain lamella magnetite-ilmenite minerals with an iron
component of Fe ≥ 54% and compound concentration Titanium oxide of 1% <TiO2 ≤ 25%.
*****) This represents ilmenite concentrates that contain lamella magnetite-ilmenite minerals with compound
concentration Titanium oxide of TiO2 ≥ 45%.

158 PwC
 Appendix B

Regional Taxes
This table represents a selection of the various regional taxes that are relevant to the
mining industry.

Type of Regional Tax Maximum Tariff Current Tariff Imposition Base

A. Provincial Taxes

1 Taxes on motor 10% Non-public vehicles

vehicle
1%-2% for the first Calculated by multiplication of two
vehicle owned. Starting 5 factors:
January 2025 will become a. Motor vehicle sales value; and
maximum 1.2%. b. Motor vehicle weight (which
contributes to level of
2% - 10% for the second road deformation and/or
vehicle owned and above. environmental damage caused
Starting 5 January 2025 due to motor vehicle utilisation.
will become maximum 6%.

0.5% - 1% for public

Vehicles. Starting 5
January 2025 will become
maximum 0.5%.

Starting 5 January 2025

there will be additional
66% of taxes on motor
vehicle (Opsen).

2 Title transfer 20% Motor vehicles

fees on motor
vehicle, and 20% on the first title -
water surface Transfer. Starting 5
vessels January 2025 will become
maximum 12%.

1% on the second title -

transfer and above.
Starting 5 January 2025
will become maximum
12%.

Starting 5 January 2025 -

there will be additional
66% of title transfer fees
on motor vehicle, and
above - water vessels
(Opsen).

3 Tax on heavy 0.2% Set by region Calculated by reference to the sales

equipment value and a weight factor (size, fuel,
type, etc.). A Government table will
be published on an annual basis to
enable this calculation.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 159

 Appendix B

Type of Regional Tax Maximum Tariff Current Tariff Imposition Base

4 Tax on motor 10% For public vehicles: at Sales price of fuel (gasoline, diesel
vehicle fuel least 50% lower than the fuel, and gas fuel)
tax on non-public vehicle
fuel (depending on each
region)

5 Tax on the 10% Set by region Purchase value of water (determined

collection and by applying a number of factors).
utilisation of
surface water

B. Regency and Municipal Taxes

6 Catering 10% 10% Purchase value

7 Tax on electric 10% 3% for utilisation by Sales on electricity

power industry

1.5% for personal use -

8 Tax on non- 25% Set by region -

metal minerals
and rocks
(formerly the Starting 5 January 2025 -
C-Category there will be additional
mined 25% of tax on non-metal
substance minerals and rock (opsen).
collection)

9 Tax on 20% Set by region Purchase value

groundwater

10 Land and 0.5% Set by region Land and buildings sale value
Building Tax

11 Duty on the 5% Set by region Land and buildings sale value

acquisition
of land and
buildings rights

160 PwC
 Ministry of Energy and Mineral Resources
Organisational Structure

SENIOR
SENIORADVISORS
ADVISOR MINISTER
SENIOR
SENIORADVISOR
ADVISOR
VICE MINISTER

Inspectorate Secretariat
General General

Directorate General Human Resources

Directorate Directorate Directorate
of New, Renewable Geological Development Agency
General of Oil General of General of
Energy, and Energy Agency of Energy and Mineral
and Gas Electricity Mineral and Coal
Conservation Resources

Center of Data and

Information Technology Center of State-Owned
on Energy and Mineral Assets Management
Resources

Note:
1. Senior Advisor to the Minister for Strategic Planning

Mining in Indonesia: Investment, Taxation and Regulatory Guide

2. Senior Advisor to the Minister for Institutional Relationship
3. Senior Advisor to the Minister for Natural Resources Economics
Appendix C

4. Senior Advisor to the Minister for Environment and Spatial Planning

161
 Appendix D

IMA (the Indonesian Mining Association)

The IMA was founded on 29 May 1975, as a non-

governmental, non-political, and non-profit organisation
established in accordance with the laws of the Republic of
Indonesia. The headquarters and registered office of the
association is located in Jakarta.

The association serves as a link between the Government

and the mining industry, organising lectures, seminars,
and training activities for members, as well as periodic
conferences on mining in Indonesia, publishing proceedings
and mining information, and representing the Indonesian
mining industry at national and international meetings. The
IMA is a founding member of the ASEAN Federation of
Mining Associations, and currently operates the secretariat
for the Federation.

Purpose
The aims and objectives of the association are to support the government and its policies
in order to encourage the development of the mining industry and to utilise non-confidential
and non-proprietary information to promote the exploration, mining, mineral beneficiation and
metallurgical aspects in Indonesia through:
1. Studying problems relating to the above aspects of the mining industry at the national level
and finding possible solutions to these problems.
2. Studying modern methods in the mining industry, which have been adopted in other
countries, for potential application in Indonesia.
3. Fostering mutual respect between the members of the association, both private and
governmental (it being understood that no decision or action of the association shall affect
any contracts to which any of the members are a party).
4. Advancing new ideas relating to the above aspects of the mining industry.
5. Fostering a spirit of scientific research among the members of the association.
6. Establishing contact and cooperating with similar professional organisations outside of
Indonesia.
7. Disseminating objective information and analysis concerning the above aspects of the
mining industry.
8. Maintaining a high standard of professional conduct on the part of the Association’s
members.
9. Promoting the development of the necessary infrastructure to support the mining industry
in Indonesia.
10. Familiarising the general public and educational institutions with current developments and
problems in the mining industry.
11. Giving assistance to and encouraging potential university graduates to prepare for a career
in the mining industry.

162 PwC
 Appendix D

APBI-ICMA (the Indonesian Coal Mining Association)

APBI-ICMA was founded on 20 September 1989 as a response to the challenges of the coal
mining industry in Indonesia.

The APBI-ICMA is a non-government, non-profit and non-political organisation that embraces

both upstream (exploration and exploitation) and downstream (marketing and distribution,
utilisation, and mining services) aspects of the coal industry in Indonesia.

The association aims to create an environment that allows its members to discuss common
concerns and exchange ideas, and it works towards a common goal for the coal mining industry.

The APBI-ICMA also acts as a partner to relevant government Institutions and provides them
with the industry’s views on how to encourage a favourable environment for investment and
competition.

The APBI-ICMA works collaboratively with all stakeholders to enhance investment in and
strengthen the economic health of the coal mining industry in order to deliver greater benefits to
government, investors, communities, employees, customers, and the environment.

APNI (Asosiasi Penambang Nikel Indonesia)

APNI was formed by the Mineral and Coal Directorate of the

Ministry of Energy and Mineral Resources on 6 January 2017
and was appointed to the FORMATUR management by the
Director of Mineral Development, Mr. Bambang Susigit, on 6
March 2017.

APNI's vision is to become the best association organisation

that creates superior values and work programs that are
able to synergize all Indonesian nickel mining actors and
become a source of pride for all nickel mining stakeholders
in Indonesia, the government and Indonesian society in
general.

APNI's mission is committed to creatively transforming nickel mineral natural resources for
people's welfare and sustainable development with an environmental perspective through the
best mining management practices "best mining practise" by prioritising the welfare and peace
of members and the community in general, human resource development, social responsibility
and environment, occupational safety and health and job creation.



Mining in Indonesia: Investment, Taxation and Regulatory Guide 163
 Appendix E

Summary of CCoW generations

Second
No Item First Generation Third Generation Remarks
Generation
1 Dead rent – in USD
per hectare per
annum unless stated
otherwise
a. General Survey 0.01 – 0.03 0.05 – 0.10 0.025 – 0.05 Second Generation’s
b. Exploration 0.08 – 0.20 0.20 – 0.70 0.10 – 0.35 dead rent follows the
prevailing dead rent
tariff
c. Feasibility 0.20 1.00 0.50
d. Construction 0.20 1.00 0.50
e. Operation 1.00 2.00 - 4.00 1.50 – 3.00
2 Production royalty 13.5% 13.5% 13.5% Based on the coal
rate (%) sales price minus
certain marketing/
selling expenses
3 CIT
a. Tax Rates 35% for the first 25%*) Incremental CIT rate
ten years of the to 30% (or a lower
Operating Period; rate that is subject to
45% thereafter a GR)

b. Depreciation rates
Non-building
assets:
i. Straight line 12.5% 5% - 25%*) 10% - 50% (for
tangible assets
that are located in
the Contract Area);
otherwise 5% - 25%
ii. Declining Not Applicable 10% - 50%*) 20% - 100% (for
balance tangible assets
that are located in
the Contract Area);
otherwise 10% -
50%
Building assets:
i. Straight line 12.5% 5% - 10%*) 10% - 20% (for
tangible assets
that are located in
the Contract Area);
otherwise 5% - 10%
ii. Declining Not Applicable Not Not Applicable
balance Applicable*)

164 PwC
 Appendix E

Second
No Item First Generation Third Generation Remarks
Generation
c. Amortisation rates
(%)
a. Straight line 12.5% 10% - 25%*) 10% - 50% Under most CCoWs,
the costs incurred
prior to commercial
operation may
be deferred and
b. Declining Not applicable 10% - 50%*) 20% - 100% amortised
balance
d. Accelerated
Depreciation
Non-building 25% Not Not Applicable Accelerated
assets: Applicable*) depreciation can be
Building assets: 10% Not Not Applicable claimed only within
Applicable*) the first four years of
the life of the assets
e. Investment 20% of total Not Not Applicable At the rate of 5% a
allowance investment Applicable*) year
f. Deductible
expenses:
Operating
Expenses:
i. Cost of
materials,
supplies,   
equipment,
and utilities
ii. Expenses for
contracted   
services
iii. Premiums for
insurance   

iv. Damages/
losses that
are not
  
compensated
for under
insurance
v. Payments
of royalties
or other
payments
in respect
  
of patents,
designs,
technical
information,
and services
vi. Losses from Provision is not
obsolescence deductible
  
or destruction
of inventory
vii. Rentals   

Mining in Indonesia: Investment, Taxation and Regulatory Guide 165

 Appendix E

Second
No Item First Generation Third Generation Remarks
Generation
viii. Dead rent,
surface rent,
production
royalties,   
stamp duty,
and other
levies
ix. Sales tax  Silent Silent
x. Uncredited Silent
 
VAT
xi. Expenses for
treatments,
washing,
processing,
repairs and
maintenance,   
handling,
storage,
loading,
transportation,
and shipping
xii. Expenses for
commission   
and discounts
xiii. Expenses for Silent
environment/  
reclamation
xiv. Expenses Silent For the Third
incurred Generation, these are
prior to the deductible, provided
establishment that the expenditures
of the x  have been audited
company by a by an independent
shareholder auditor and approval
from the DGT has
been obtained
Sales, General &
Administation
i. Salaries and
wages   

ii. Costs of For Second

specified BIKs Generation, these are
in the Contract not deductible unless
 x 
Area the holder obtains
remote area approval
from the DGT
iii. Research For the Second
expenses Generation, this
  
should be performed
in Indonesia
iv. Travel Only for business
expenses    purposes
v. Technical fees   

166 PwC
 Appendix E

Second
No Item First Generation Third Generation Remarks
Generation
vi. Management
fees and
other fees
  
for services
performed
abroad
vii. Communication
and office   
expenses

viii. Dues and

subscriptions   

ix. Advertising and

other selling
expenses,   
public relations,
and marketing
x. Legal and
auditing   
expenses
xi. General
overhead   
expenses
xii. Exploration
expenses   

xiii. Other relevant

expenses   

xiv. Reserve for Silent For the Third

reclamation Generation, this is
subject to a deposit
being placed in a
 
State-Owned bank,
audited by a public
accountant, and
approved by the DGT
g. Interest deductibility

Maximum DER 1.5 to 1 4 to 1*) Not Applicable

refer to PMK-
169
Maximum DER for Not Applicable Not Applicable 5 to 1
Investments <=USD
200m

Maximum DER for Not Applicable Not Applicable 8 to 1

Investments >USD
200m

Mining in Indonesia: Investment, Taxation and Regulatory Guide 167

 Appendix E

Second
No Item First Generation Third Generation Remarks
Generation
h. Tax loss carried Four years (losses Five years Eight years
forward before the fifth
anniversary of the
Operating Period
can be utilised in
any year)

4 WHT rates
i. Dividends, 10% 15% for 15% for domestic For the Second and
interest and domestic taxpayer, 20% for Third Generation, the
royalties taxpayers, foreign taxpayer reduced tax rate is
20% for available under a tax
foreign treaty;
taxpayers
ii. Dividends 10% Silent 7.5% However, please note
(founder that the WHT rates
shareholders) under CCoWs may be
irrelevant, based on
iii. Rental, 10% 2% to 20% 15%/20% of deemed PMK-39
technical fees, net income
management
fees and other
service fees
(domestic/
foreign)
iv. EIT Applicable*) Applicable*) Applicable*)

5 VAT rates
i. VAT on coal Not Applicable* Exempted*) 10% on domestic Third Generation
sales sales; 0% on export CCoW VAT
sales obligations are
grandfathered to
the 1994 VAT Law.
Any VAT that is paid
should be creditable/
refundable
ii. VAT on Not Applicable* 10% paid to 10% collected by the Input VAT cannot be
domestic vendor*) mining company credited/refunded by
purchases Second Generation
CCoW holders, but
this is deductible for
CIT purposes
iii. VAT on import Not Applicable* 10% paid Could be exempted
to Custom in accordance
Office*) with the prevailing
regulations
iv. VAT on Not Applicable 10% on 10% on self
offshore a self- assessment basis
services assessment
basis*)

168 PwC
 Appendix E

Second
No Item First Generation Third Generation Remarks
Generation
6 Sales Tax rates 2 - 2.5% on Not Not Applicable The Sales Tax was
domestic Applicable repealed in 1984,
services that when VAT was
are provided to introduced;
contractors;
and 0 - 5% on A list of services (and
goods (for one goods) is provided in
Contractor only) PMK-194t
7 Import of capital Exempted a. Exempted/ [Link]/ Exemption from
goods: reduced rates reduced rates import duty is subject
a. Import duty up to the 10th up to the 10th to either CCoW or
b. Article 22 Income anniversary of anniversary of the BKPM Master List
Tax the Operating Operating Period, approval
Period, in in accordance
accordance with the prevailing
with the regulations;
prevailing
regulations; b. Could be
exempted in
b. Could be accordance with the
exempted in prevailing regulations
accordance
with the
prevailing
regulations
8 Other taxes and levies
a. Regional taxes Regional Applicable* Follows the prevailing
(e.g. motor vehicles Development Regional Tax Law at
and street lighting Tax (IPEDA): a rate not exceeding
levies) maximum of USD the prevailing rate at
100,000 a year the signing date

b. Land and Silent 0.5% x 40% Pre-production

building tax of the sale period: equal to
value of PBB deadrent;
objects*) Operating production
(refer to PER- period: deadrent plus
47) 0.5% x 30% of gross
revenue from the
mining operations
9 Stamp duty 1/1000 of the total IDR 3,000/ IDR Silent
loan amount 6,000*)

Note:
*) follows the prevailing tax laws and regulations

Mining in Indonesia: Investment, Taxation and Regulatory Guide 169

 Appendix E

Summary of Mineral CoW Generations

No Item Third Generation Fourth Generation Fifth Generation Sixth Generation Seventh Generation Remarks

1 Dead rent – in US$ per hectare per

annum, unless stated otherwise:
a. General Survey 0.01 - 0.03 0.025 - 0.05 0.025 - 0.05 0.025 - 0.05 0.025 - 0.05
b. Exploration 0.08 - 0.2 0.1 - 0.35 0.1 - 0.35 0.1 - 0.35 0.1 - 0.35
-
c. Feasibility 0.2 0.5 0.5 0.5 0.5
d. Construction 0.2 0.5 0.5 0.5 0.5
e. Operation 1.00 - 2.00 1.50 - 3.00 1.50 - 3.00 1.50 - 3.00 1.50 - 3.00
2 Production royalty rate (%) Annex E Annex F Annex F Annex F Annex F Annex F of the CoW usually provides
details of the royalty rates.
3 CIT:
a. Tax Rates Follows the prevailing laws, Maximum of 35% Maximum of 35% Incremental CIT rate up to Incremental CIT rate up to
but not higher than: 30% (or lower rate, subject 30% (or lower rate, subject
- 35% for the first five to a GR) to a GR)
years of the Operating
Period; -
- 40% for the second five
years of the Operating
Period;
- 45% thereafter.
b. Depreciation rates
Non-building assets:
i. Straight line 12.5% Not Applicable Groups 1 and 2 follow ITL 10% -50% (for tangible 10% -50% (for tangible For the fifth generation, the tax
1984 assets located in the assets located in the depreciation rates only apply to tangible
Group 3: 12.5% Contract Area); otherwise Contract Area); otherwise assets that are located in the Contract
5%-25% 5%-25% Area. Otherwise, the provisions under the
1984 Income Tax Law should prevail
ii. Declining balance Not Applicable 25% Groups 1 and 2 follow ITL 20% - 100% (for tangible 20% - 100% (for tangible -
1984 assets located in the assets located in the
Contract Area); otherwise Contract Area); otherwise
10%-50% 10%-50%

Building assets:
i. Straight line 12.50% 25% 12.50% 10%-20% (for tangible 10%-20% (for tangible -
assets that are located assets that are located
in the Contract Area); in the Contract Area);
otherwise 5%-10% otherwise 5%-10%

ii. Declining balance Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable -
c. Amortisation rates
a. Straight line 12.5% Not Applicable 25.0% 10% -50% 10% -50% Under most CoWs, the costs incurred prior
to commercial operation may be deferred
and amortised
b. Declining balance Not Applicable 25% Not Applicable 20% - 100% 20% - 100% -
d. Accelerated Depreciation
Non-building assets: 25% Not Applicable Not Applicable Not Applicable Not Applicable For the third generation, accelerated
Building assets: 10% Not Applicable Not Applicable Not Applicable Not Applicable depreciation can only be claimed within
any one of the first four years of the life of
the assets

Mining in Indonesia: Investment, Taxation and Regulatory Guide 170

 Appendix E

No Item Third Generation Fourth Generation Fifth Generation Sixth Generation Seventh Generation Remarks

e. Investment allowance 20% of total investment Not Applicable Not Applicable Not Applicable Not Applicable At the rate of 5% a year
f. Deductible expenses:
Operating Expenses:
i. Cost of materials, supplies,
equipment and utilities      -
ii. Expenses for contracted
     -
services
iii. Premiums for insurance      -
iv. Damage/losses not
compensated for by insurance      -
v. Payments of royalties or other Third Generation - payment to affiliates is
payments in respect of patents, subject to approval from the DGT
designs, technical information,     
and services
vi. Losses from obsolescence or
destruction of inventory      -
vii. Rentals      -
viii. Deadrent, surface rent,
production royalties, stamp      -
duty, and other levies
ix. Sales Tax  Silent Silent Silent Silent -
x. Uncredited VAT Silent     -
xi. Expenses for treating,
processing, repairs and
maintenance, handling,      -
storage, transportation and
shipping
xii. Expenses for commissions and
discounts      -

xiii. Environmental expenses Silent Silent Silent   -

xiv. Expenses incurred prior to the It is deductible, provided that the
establishment of the company expenditures have been audited by an
    
and expended by a shareholder independent auditor and approval from the
DGT has been obtained

171 PwC
 Appendix E

No Item Third Generation Fourth Generation Fifth Generation Sixth Generation Seventh Generation Remarks

Sales and General & Administration:

i. Salaries and wages      -
ii. Costs of specified BIKs in the
     -
contract area
iii. Research expenses      -
iv. Travel expenses      Only for business purposes
v. Technical fees      -
vi. Management fees and other
fees for services performed      -
abroad

vii. Communication and office

expenses      -
viii. Dues and subscriptions      -
ix. Advertising and other selling
expenses, public relations, and      -
marketing expenses

x. Legal and auditing expenses      -

xi. General overhead expenses     -
xii. Exploration costs      -
xiii. Other relevant expenses      -
xiv. Reserve for reclamation Subject to a deposit being placed in a
Silent Silent Silent   State-Owned bank, audited by a public
accountant, and approved by the DGT
g. Interest deductibility:
Maximum debt to equity ratio 1.5 to 1 3 to 1 Not Applicable Not Applicable Not Applicable -
Maximum debt to equity ratio for Not Applicable Not Applicable 5 to 1 5 to 1 5 to 1
-
Investment <=US$200m
Maximum debt to equity ratio for Not Applicable Not Applicable 8 to 1 8 to 1 8 to 1
-
Investment >US$200m
h. Tax losses carried forward Four years (a loss before Eight years Five to eight years Eight years Eight years
the fifth anniversary of the
-
Operating Period can be
utilised in any year)
4 WHT rates:
i. Dividends, interest and 10% 15% for domestic 15% for domestic 15% for domestic 15% for domestic Please note that the WHT rates under
royalties taxpayers; 20% for foreign taxpayers; 20% for foreign taxpayers; 20% for foreign taxpayers; 20% for foreign CoWs may be irrelevant based on
taxpayers taxpayers taxpayers taxpayers PMK-39
ii. Dividends (founder See above See above See above 7.5% 7.5%
-
shareholder)
iii. Technical, management fees Prevailing law 2% to 20% 9% for domestic taxpayers; 15% of deemed net 15% of deemed net
and others 20% for foreign taxpayers income/20% income/20% -

iv. Rentals Prevailing law 15% for domestic 15% for domestic 15% of deemed net 15% of deemed net
taxpayers; 20% for foreign taxpayers; 20% for foreign income/20% income/20% -
taxpayers taxpayers
v. EIT Applicable Applicable Applicable Applicable Applicable Follows the prevailing tax laws and
regulations

Mining in Indonesia: Investment, Taxation and Regulatory Guide 172

 Appendix E

No Item Third Generation Fourth Generation Fifth Generation Sixth Generation Seventh Generation Remarks

5 VAT rates:
i. VAT on sales Silent 10% on domestic sales; 10% on domestic sales; 10% on domestic sales; 10% on domestic sales; 0% The fifth generation VAT obligations are
0% on export sales 0% on export sales 0% on export sales on export sales grandfathered to the 1984 VAT Law

ii. VAT on domestic purchases Silent 10% paid to vendor 10% collected by the mining 10% collected by the mining 10% collected by the mining The sixth and seventh generations VAT
company company company obligations are grandfathered to the 1994
VAT Law
iii. VAT on imports Silent Deferred up to the 10th Deferred up to the 10th Could be exempted, Could be exempted,
anniversary of the Operating anniversary of the Operating in accordance with the in accordance with the -
Period Period*) prevailing regulations prevailing regulations
iv. VAT on offshore services Silent 10% on a self assessment 10% on a self assessment 10% on a self assessment 10% on a self assessment
basis basis basis basis -
6 Sales Tax rates Applicable Not Applicable Not Applicable Not Applicable Not Applicable The Sales Tax was repealed in 1984, when
VAT was introduced
7 Import of capital goods: a. Exempted up to the 10th a. Exempted/reduced a. Exempted/reduced a. Exempted/reduced a. Exempted/reduced rates Exemption of import duty is subject to
a. Import Duty anniversary of commercial rates up to the 10th rates up to the 10th rates up to the 10th up to the 10th anniversary either CoW or BKPM Master List approval
production; anniversary of the anniversary of the anniversary of the of the Operating Period,
Operating Period, in Operating Period*), in Operating Period, in in accordance with the
accordance with the accordance with the accordance with the prevailing regulations;
prevailing regulations; prevailing regulations; prevailing regulations;
b. Could be exempted
b. Could be exempted in accordance with the
b. Article 22 Income Tax b. Silent b. Silent b. Silent
in accordance with the prevailing regulations
prevailing regulations
8 Other taxes and levies:
a. Regional taxes (e.g. motor vehicles - Regional charges Applicable Applicable Applicable Applicable Generally capped at the rate not exceeding
and street lighting levies) - Regional Development the rate prevailing at the CoW signing date
Tax (“IPEDA”): amount
equal to deadrent and an
amount based on the non-
public area
b. Land and building tax Silent Applicable Applicable Applicable Applicable -
c. Stamp duty 1/1000 of the total loan Applicable Applicable Applicable Applicable -

173 PwC
Appendix F

About PwC
The firms of the PwC global network ([Link]/id) provide industry-focused assurance,
tax, legal, advisory, and consulting services for public and private companies. More than
370,000 people in 149 countries connect their thinking, experience and solutions to build trust
and enhance value for clients and their stakeholders.

PwC is organised into lines of service, each staffed by highly qualified experienced professionals
who are leaders in their fields, providing:

Assurance provides assurance over any Deals Advisory implements an

systems, processes or controls, and over integrated suite of solutions covering
any set of information, to the highest PwC deals and transaction support, from deal
quality: strategy through to execution and post deal
• Financial Statement Audit; services:
• Risk Assurance: • Business Recovery Services;
- Governance, Risk and Compliance; • Sustainable Infrastructure Advisory;
- Digital Trust Solutions; • Economics & Policy;
- Internal Audit; • Corporate Finance;
• Capital Markets & Accounting Advisory • Valuation;
Services: • Deal Strategy;
- Accounting Advisory Services; • Delivering Deal Value;
- Capital Market Services; • Transaction Services;
- Integrated Financial Reporting and • Environmental, Social and Governance (ESG);
Technology; • Energy Transition Services;
• ESG Reporting and Assurance. • Forensic Investigations;
• Financial Crime Solutions;
Tax Services optimises tax efficiency and • Forensic Technology Solutions; and
contributes to overall corporate strategy • Human Rights Impact Assessments.
through the formulation of effective tax
strategies and innovative tax planning. Consulting helps organisations work smarter
Some of our value-driven tax services and grow faster. We consult with our clients in
include: order to build effective organisations, innovate
• Corporate Tax; and grow, reduce costs, to manage risk and
• International Tax; regulations, and leverage talent. Our aim is
• Transfer Pricing (TP); to support you in designing, managing, and
• Mergers and Acquisitions (M&A); executing lasting beneficial change:
• VAT; • Digital Transformation;
• Tax Disputes; • Risk; and
• International Assignments; • Strategy.
• Customs;
• Investment and Corporate Services;
• Tax Technology & Strategy; and
• Carbon Tax Advisory.

174 PwC
 Appendix F

Photo source: PT Bukit Asam Tbk

Legal Services provides solutions of the highest quality through the provision of cutting-edge legal
solutions to support and facilitate legal development in Indonesia. We work with you to understand
your commercial objectives and offer you seamless end-to-end service across the lifecycle of your
project. Our core value is providing legal services that put the needs and priorities of our clients
first, while continuously improving our approach and continuing to do business ethically. Our legal
services include:
• Mergers & Acquisitions and Corporate Advisory;
• Finance and Financial Regulation;
• Capital Markets; and
• Regulatory.

For companies operating in the Indonesian mining sector, there are some compelling reasons to
choose PwC Indonesia as your professional services firm:

• The PwC network is the leading adviser to the mining industry, both globally and in
Indonesia, working with more explorers, producers and related service providers than any
other professional services firm. We have operated in Indonesia since 1971, and have over
3,500 professional staff, including more than 80 partners and technical advisors, specialised
in providing assurance, advisory, tax and legal services to Indonesian and international
companies.
• Our Energy, Utilities and Resources (“EU&R”) practice in Indonesia is comprised of over 550
dedicated professionals across all our lines of service. This body of professionals brings
deep local industry knowledge and experience together with international industry expertise,
giving us the largest group of industry specialists in the Indonesian professional services
market. We also draw on the PwC global EU&R network which includes more than 25,700
people focused on serving energy, power and mining clients.
• Our commitment to the mining industry is unmatched, as demonstrated by our active
participation in industry associations around the world and our thought leadership on
the issues affecting the industry. Through our involvement with the Indonesian Mining
Association, Indonesian Coal Mining Association and Indonesian mining companies, we are
helping to shape the future of the industry.
• Our client service approach involves learning about your organisation’s issues and seeking
ways to add value to every task we perform. Detailed industry knowledge and experience
ensures we have the required background and understanding of industry issues, and can
provide sharper, more sophisticated solutions that help clients accomplish their strategic
objectives.
Contact us to discuss your plans for investment in the Indonesian mining sector.

Mining in Indonesia: Investment, Taxation and Regulatory Guide 175

Appendix F

PwC Mining Contacts

PwC mining key contacts
Sacha Winzenried Dedy Lesmana Antonius Sanyojaya
[Link]@[Link] [Link]@[Link] [Link]@[Link]

Assurance
Daniel Kohar Elvia Afkar Firman Sababalat
[Link]@[Link] [Link]@[Link] [Link]@[Link]

Heryanto Wong Irwan Lau Toto Harsono

[Link]@[Link] [Link]@[Link] [Link]@[Link]

Yanto Kamarudin Yusron Fauzan Aditya Warman

[Link]@[Link] [Link]@[Link] [Link]@[Link]

Andi Harun Dodi Putra Feliex Taner

[Link]@[Link] [Link]@[Link] [Link]@[Link]

Galih Baskoro Lanny Then Lukman Chandra

galih.b@[Link] [Link]@[Link] [Link]@[Link]

Tody Sasongko
[Link]@[Link]

Tax
Alexander Lukito Otto Sumaryoto Peter Hohtoulas
[Link]@[Link] [Link]@[Link] [Link]@[Link]

Suyanti Halim Turino Suyatman Omar Abdulkadir

[Link]@[Link] [Link]@[Link] [Link]@[Link]

Raemon Utama Tjen She Siung

[Link]@[Link] [Link]@[Link]

Legal
Danar Sunartoputra Indra Allen Fifiek Mulyana
[Link]@[Link] [Link]@[Link] [Link]@[Link]

Puji Atma
[Link]@[Link]

Advisory
Agung Wiryawan Joshua Wahyudi Julian Smith
[Link]@[Link] [Link]@[Link] [Link]@[Link]

Michael Goenawan Hafidsyah Mochtar Christian Sinaga

[Link]@[Link] [Link]@[Link] [Link]@[Link]

Paul van der Aa Roman Nedielka

[Link]@[Link] [Link]@[Link]

Consulting
Pieter van de Mheen Vsevolod Himmelreich Yandi Irawan
[Link]@[Link] [Link]@[Link] [Link]@[Link]

176 PwC
 Photo source: PwC

Mining
Mining in
in Indonesia:
Indonesia: Investment,
Investment, Taxation
Taxation and
and Regulatory
Regulatory Guide
Guide 177
177
 Acknowledgements
We would like to convey our sincere thanks to all of the contributors for their
efforts in support of the preparation of this publication.

Photographic contributions

We gratefully acknowledge and thank the following companies that have

provided photographs for inclusion in this publication (in alphabetical order):

PT Agincourt Resources PT Musi Prima Coal

PT Aneka Tambang Tbk PT Sumbawa Timur Mining
PT Bukit Asam Tbk PT Tuah Turangga Agung
PT Freeport Indonesia PT Vale Indonesia Tbk

Project Team

Sacha Winzenried Aulia Ramadhan

Dedy Lesmana Bob Simatupang
Puji Atma Evan Adison
Raemon Utama Freddy Untoro
Suyanti Halim Gita Mutiara
Deodatus Segara Hadi Santoso
Galih Baskoro Hanina Hadad
Mochamad Indrawan Hatma Suryoharyo
Asshary Arbaa Hendratama Riefky
Ricky Saharim Jane Angelica
Roman Nedielka Laras Taslima
Hansel Tanuwijaya Micheline Hendrito
Fitri Budiman Pradhita Audi
Anthony Phoea Regio Agre
Damar Pranadi Sri Suryani
Harrish Nor Stella Faronikka
Rendy Jusanto Tristan Hamuda
Al Ghiffary William Sinambela
Andhika Widjaja Wynne Nathanael

PwC Indonesia
Jakarta Surabaya
WTC 3 Pakuwon Tower
Jl. Jend. Sudirman Kav. 29-31 Tunjungan Plaza 6, 50th Floor, Unit 02-06
Jakarta 12920 - Indonesia Jl. Embong Malang No. 21-31
Telp: +62 21 5099 2901 / 3119 2901 Surabaya 60261 - Indonesia
Fax: +62 21 5290 5555 / 5290 5050 Telp: +62 31 9924 5759

[Link]/id

178 PwC
More Insights
3

Visit [Link]/id to
1 2
download or order hardcopies of
reports

1. Power in Indonesia: Investment

and Taxation Guide
2. Power Industry Survey
3. Energy, Utilities & Resources
NewsFlash
4. Oil and Gas in Indonesia:
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5. Investor survey of the
4 5 6
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6. Mine 2024: Preparing for
impact
7. Indonesian Mining Areas,
Indonesia Oil & Gas
Concessions & Major
Infrastructure, and Indonesia’s
Major Power Plants and
Transmission Lines Maps
8. Global M&A Trends in Energy,
Utilities & Resources: 2024
Mid-Year Outlook
9. Mining Taxes Summary Tool 7 8
10. Indonesia's Carbon Pricing -
Understanding the Basic
Regulatory Framework
11. Capturing the energy-demand
opportunity: Practical steps for
business leaders
12. Indonesian Pocket Tax Book

9 10 11 12

Mining in Indonesia: Investment, Taxation and Regulatory Guide 179

 Endnotes
No. Source Page
Maybee et al., 2023. B. Maybee, E. Lilford, M. Hitch. Environmental, Social and
1. Governance (ESG) risk, uncertainty, and the mining life cycle. Extr. Ind. Soc., 14 (2023), 19
Article 101244, 10.1016/[Link].2023.101244

2. [Link] 19

Baek, J., Park, J., Cho, S., and Lee, C. (2022). 3D global localization in the underground
3. mine environment using mobile LiDAR mapping and point cloud registration. Sensors 22 19
(8), 2873. doi:10.3390/s22082873

Pennini, A. (2020). The ESG bar has just been raised. Who will get over it? Min. J.
4. [Link] 19
been-raised-who-will-get-over-it

5. [Link] 19

[Link]
6. 20
governance/

W. Sardjono, Maryani, J. Sudrajat, E. Lusia (2023). Sustainable Development In The Coal

Mining Operation: Challenges, Opportunities, And Strategies. International Conference
7. 20
on Community Development (ICCD) Vol 5. No. 1, November 2023: 528–537. https://
[Link]/ojs/[Link]/iccd/article/view/602/539

G. R. Layungasri (2010). Challenges for Sustainability Index: Is Being ‘Green’

8. Economically Viable for Indonesian Mining Companies? Centre For Energy, Petroleum 20
And Mineral Law And Policy. [Link]

Pratiwi; Narendra, B.H.; Siregar, C.A.; Turjaman, M.; Hidayat,A.; Rachmat, H.H.;
Mulyanto, B.; Suwardi; Iskandar; Maharani, R.; et al. Managing and Reforesting
9. 20
Degraded Post-Mining Landscape in Indonesia:
A Review. Land 2021, 10, 658. [Link]

10. World Bank Data 2024. [Link] 24

11. Energy Institute. The 2024 Statistical Review of World Energy. 24

COP28: Key outcomes agreed at the UN climate talks in Dubai", Carbon Brief, January
12. 2024; COP 28: What Was Achieved and What Happens Next?", United Nations Climate 24
Change (UNCC), 2023

13. [Link] 24
fuelendgame-brings-focus-onto-false-solutions/

14. BPS Indonesia data, 2024. 26

MEMR Republic of Indonesia, “Handbook of Energy & Economic Statistics of Indonesia

15. 2023”, 2023. [Link] 26
[Link]

16. Based on the average exchange rate of USD/IDR in 2000 of 8.421 26

Based on the average exchange rate of USD/IDR in 2023 of 15,416, BPS Indonesia data,
17. 26
2024

[Link]
18. 29
transitions

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No. Source Page

[Link]
19. 29
transitions

Development Asia, “Expanding Critical Minerals Supply Chains for the Clean
20. Energy Transition”, 2024. [Link] 29
critical-minerals-supply-chains-clean-energy-transition

Ballinger et al., “The vulnerability of electric vehicle deployment to critical

mineral supply”, Applied Energy, 2019; Nordelöf et al., “Life cycle assessment
of city buses powered by electricity, hydrogenated vegetable oil or diesel”,
Transportation Research Part D: Transport and Environment, 2019; Sprecher
et al., “Life Cycle Inventory of the Production of Rare Earths and the
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Subsequent Production of NdFeB Rare Earth Permanent Magnets”, 2014;
IEA, “Electric vehicles and battery storage”, The Role of Critical Minerals in
Clean Energy Transitions, 2022. [Link]
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IEA, “Electric vehicles and battery storage”, The Role of Critical Minerals in
Clean Energy Transitions, 2022. [Link]
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uploads/2021/05/TheRoleofCriticalMineralsinCleanEnergyTransitions-85-112.
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IEA. The role of critical minerals in clean energy transition. Available in this
23. link: [Link] 30
transitions

Pursuant to Law No. 20 of 2008 on Micro, Small, and Medium Businesses

(as lastly amended by the Job Creation Law, large-scale business means
24. businesses with net assets or annual sales higher than those of a medium- 142
scale businesses and consist of private or state-owned businesses, joint
ventures, and foreign investors conducting economy activities in Indonesia.

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182 PwC
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