Introduction

Article 33, paragraph (3) of the 1945 Constitution stipulates that “the land, water, and natural resources contained therein are controlled by the state and utilized for the greatest prosperity of the people”. To realize this mandate, every available resource, including mineral resources as non-renewable natural resources, must be managed and exploited efficiently with an environmental standpoint to ensure sustainable national development.

In general, mineral resources can be classified into two major classifications: metal and non-metal. Both metal and non-metal minerals are essential resources that play a crucial role in bolstering the national economy. Therefore, they must be managed optimally and efficiently. One of the approaches taken to optimize the management of mineral resources is a value-added policy (“downstream policy”) that aims to increase the added value of mineral products to optimize their economic worth. This policy is governed under Law Number 4 of 2009 on Mineral and Coal Mining as amended by Law Number 3 of 2020 on the Amendment to Law Number 4 of 2009 on Mineral and Coal Mining and Law Number 6 of 2023 on Job Creation (“MCM Law”) and its derivative regulations.

Discussion

  1. Obligation to Increase Added Value of Mineral Product
    The activities to increase the added value of minerals (“downstream activites”) are conducted within the country to optimize economic benefits for the nation. The downstream policy for mineral resources is enforced and mandatory for all mining business actors (holders of Mining Business Permits (“IUP”) and Special Mining Business Permits (“IUPK”) for the Production Operation stage). Downstream activites encompasses: 1

    1. Processing and/or Refining for metal mineral commodities; and
    2. Processing for non-metal mineral commodities; and
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Processing and refining are processes aimed at improving the quality and the level of mineral products from unprocessed raw products, such as mineral ore, concentrate, or by-products, into other products with higher selling value.

  1. Implementation Mechanism
    IUP or IUPK holders for the Production Operation can conduct their Processing and/or Refining obligations independently using their own processing and/or refining facilities that are integrated with mining activities or by cooperating with: 2

    1. other IUP or IUPK holders that have integrated facilities for Processing and/or Refining; or
    2. other parties possessing permits to conduct Processing and/or Refining, which are not integrated with Mining activities.

In order to force and ensure the enforcement of mineral resource downstream activities, the state implements a number of supplementary policies, one of which relates to the sales policy of mineral products, particularly as it relates to overseas sales (“exports”). Export of mineral products is only permitted if domestic mineral needs have been fulfilled and mineral products have fulfilled the minimum standard for domestic processing and/or refining.3 Consequently, only processed and refined mineral products that can be exported abroad. Besides export ban policy, the state also provides incentives to stimulate the implementation of mineral mining downstream policy and impose sanctions on mining business actors who do not comply with the obligation to increase added value.

  1. Incentive
    1. Production Operation Activity Term Incentives
      In order to incentivize mining business actors to build processing and/or refining facilities, the Minerba Law offers special incentives in the form of a 30-year Production Operation term for IUP or IUPK holders who build integrated processing and/or refining facilities with mining activities.4 The term aforementioned is 10 years longer than the maximum 20-year term for mineral mining operations with no integrated processing and/or refining facilities.
    2. Guarantee on the Utilization of Processing and/or Refining Products
      The Central Government provides guarantees on the Utilization of Processing and/or Refining Products through the provision of:

      1. export facilities for processing and/or refining products; and/or
      2. fiscal and/or non-fiscal incentives for corporations that build derivative industries for Processing and/or Refining products.
  2. Sanctions
    IUP or IUPK holders who fail to comply with the obligation to increase the added value of minerals domestically through processing and/or refining are threatened with administrative sanctions in the form of:

    1. written notice;
    2. fine;
    3. temporary suspension for partial or entire Exploration or Production Operation activities; and/or
    4. revocation of IUP or IUPK.
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Closing

The downstream policy of mineral resources mandated for mining business actors is a strategic effort to optimize the economic value of mineral products, hence enhancing their potential contribution to the national economy. This policy is the manifestation of Article 33, paragraphs (3) and (4) of the 1945 Constitution, which mandates optimal and efficient management of resources for the greatest prosperity of the people.

Avaya Ruzha Avicenna

Sources

  1. Article 102 paragraph (1) MCM Law
  2. Article 104 paragraph (1) MCM Law
  3. Article 158 paragraph (2) Government Regulation Number 96 of 2021 on the Implementation of Mineral and Coal Mining Business Activities (GR 96/2021)
  4. Article 47 point f MCM Law