Indonesia Offers Dramatic Benefits for Downstream Industry... Impact of COVID-19

World's Top 6 Coal Reserves... Accelerating Downstream Development
Despite COVID-19 Recession... Recording 10% of Non-Tax Revenue

[Image source=Reuters Yonhap News]

[Asia Economy Jakarta Correspondent Sujin Choi] Indonesia, one of the world's top six countries in coal reserves, has taken steps to improve laws and regulations this year to activate the coal downstream industry. This is aimed at overcoming the economic crisis caused by the novel coronavirus disease (COVID-19) and responding to the global surge in environmental regulations. Downstream refers to the commercialization of developed resources, encompassing businesses that convert coal into gas, methanol, electricity, and other products.

According to the Jakarta Post on the 29th, the Indonesian government has passed the Mining Law and the Job Creation Law this year to support the coal downstream industry. Both laws include provisions offering unprecedented incentives in the sector.

First, under the Mining Law passed by the parliament in June, Indonesia will introduce a 30-year permit with unlimited renewals for coal miners who own downstream facilities. Miners without downstream facilities will have their permit period limited to 20 years and must apply for renewal twice, each for 10 years. The Job Creation Law enacted at the end of November promises zero royalties to miners investing in downstream activities. Furthermore, according to a presidential decree announced by the government at the end of November, additional benefits such as full exemption from land and building holding taxes will be granted to coal gasification companies designated as national strategic projects.

Indonesia's active promotion of coal downstream development is closely related to the recent economic crisis caused by COVID-19 and import restrictions on coal by various countries. Indonesia boasts the world's sixth-largest coal reserves, and until now, most of the mined coal has been exported overseas. Last year, the mining industry contributed $3.24 billion to Indonesia's non-tax state revenue, exceeding 10% of the total non-tax revenue of $28.546 billion. Despite the economic crisis caused by the COVID-19 pandemic, as of December 10 this year, the mining industry's non-tax revenue recorded $2.21 billion.

However, in the long term, exports are expected to decline due to the global decrease in coal demand. Prices are also gradually trending downward. Indonesia itself faces international pressure to reduce greenhouse gas emissions. Developing the coal downstream industry could also reduce imports of oil and natural gas from abroad.

Accordingly, the Indonesian government is focusing on the downstream industry utilizing its vast coal resources. The coal downstream business sectors defined by the Indonesian government include four areas: coal gasification facilities, coal liquefaction facilities, coke manufacturing, and mine-mouth coal-fired power plants (PLTU-MT). The government plans to add more business sectors and strengthen incentives in the future.

Norman Viset, legal advisor for overseas operators at HHP Law Firm, said in an interview with the Jakarta Post, "The government's incentives for the coal downstream business are groundbreaking for foreign operators and investors, and their impact is expected." However, he pointed out, "It remains to be seen whether all coal mining outputs will be linked to downstream projects, whether miners must build their own coal plants, or if joint venture businesses can be established."

This content was produced with the assistance of AI translation services.