Round Table discussion of PP 36/2023

A Round Table discussion on the regulation PP 36 of 2023 was undertaken by the Djakarta Mining Club in Jakarta on the 19th September 2023. The regulation refers to the requirement of miners to deposit 30% of their monthly export earnings into an Indonesian escrow account for 3 months. The meeting was attended by about 30 members from industry and similar number from various government finance related agencies. This half day discussion was undertaken in Bahasa Indonesia with relatively few slide presentations. These discussions follow earlier government socialization undertakings in various provinces etc. The purpose of this discussion was for the Government agencies to stimulate feedback from the mining industry over the next few months, such that these government agencies can submit a report to the President at the end of October 2023.

I attended this discussion in following my long-term interest in the evolution of the Indonesian exploration and mining industry. Unfortunately, my expertise does not extend to the financial management fields. I apologize for any errors or omissions that may appear in these notes. These notes should not be used for commercial decisions.

The key take-away from me is that; -

·??????? Encourage such financial authorities to learn more about how the mining sector actually operates.

·??????? This regulation may impact on a large and diverse sector of the mining industry, and encourage all to develop strategies to cope accordingly.

·??????? To encourage individuals to prepare submissions to industry representatives or directly to the key government financial agencies.

An opening presentation was delivered by Susiwjono Moegiarso, Sekretaris Kementerian Koordinator Bidang Perekonomian [secretary of the coordinating ministry for economic affairs]. This presentation highlighted that the Indonesian domestic economy is doing well, and foreign reserves are strong thanks to strong mineral & palm oil exports. One key motivation behind this regulation 36/2023 is to further strengthen Indonesia’s financial market position. This regulation is prepared with cooperation between the Ministry for Economy, Bank Indonesia (BI) and the Financial Services Authority (OJK). The presentation included a brief outline of the key components of the regulation 36/2023.

Mangantar S. Marpaung, director of the Djakarta Mining Club moderated the discussion phase, and invited comments from the government and industry parties.

Representatives of the Coordinating Ministry for Economic Affairs, Bank Indonesia and Financial Services Authority each spoke on their input towards this regulation. This includes setting the basic criteria of 30% of export income, 3-month escrow duration, completive interest rate and floor of US$ 250,000/ month were determined based on an assessment of related industry statistics. It appeared to me that these government agencies project this regulation as a generous incentive to the mining industry. It is hoped the envisaged sanctions will be largely administrative, and that companies will now have time to adjust their operations and so avoid export ban sanctions.

Comments and enquiries from the various industry parties related mostly to clarifying the nature of this regulation. Such questions were promptly responded by the government agencies. Marpaung did encourage the government agencies to consider some long-standing requests by industry to improve the business case for miners – such as speeding up the approval of issuing RKAB (work plan and budget) from 1 to 3 years. It was further noted that the number of regulations, ministry instructions and other requirements continues to be an ever-growing burden on the mining industry. There is concern that this regulation will reduce the global incentive to invest in the Indonesian mining sector. The nature of this regulation may oblige many companies to operate with a negative cash flow, and compounds the difficulties imposed by other regulations, such as the payment of royalty prior to export. It would appear to me that the potential negative impacts on companies, and the ripple down impacts on contractors & suppliers etc, may not be adequately understood by the government agencies. The regulation states one of its aims is to “increase investment and export performance of such exploitation activities…” wherein there seems to be no white paper to quantify such anticipated increased investment in the coal or other mining industries.

Dr. Moeldoko, Kepala Staf Kepresidenan (head of Presidential staff) joined the end of the discussion group. He spoke in a casual reassuring manner that this discussion was part of the process to determine the character of the proposed regulation. The Indonesian mining industry is very much in the global public eye, and there is a wider concern to get such regulations right. Dr. Moeldoko welcomed industry and government to communicate with him on such matters.

Side chats with other participants after the discussion program outlined a number of interesting points;

·??????? There is apparently an official list of commodities applied to this regulation.

·??????? The incentives to exploration may be diminished, as new mining projects can be very sensitive to the first few months cash flow.

·??????? Further investment for exploration, mining and associated industries may be diminished, as this regulation could be seen as just another regulatory burden.

·??????? It will be interesting to see how this regulation develops in relation to the approaching election year.

Congratulations to the Djakarta Mining Club for their role in hosting this round table discussion group. This event reflects the earnest and open nature of government and industry working together to achieve good regulations for the ultimate well-being of the Indonesian people.