In addressing DMO violations caused by the significant gap between the market price of coal and domestic coal prices, the Indonesian government is currently formulating legislation to establish an entity empowered to collect and disburse compensation funds as a penalty for DMO non-compliance. In 2022, the Indonesian government initially decided to establish a Public Service Agency (BLU) to implement the collection-disbursement scheme. However, the plan for the formation of the BLU entity underwent a transformation into MIP in January 2023. Find out more our insights about this topic in our Legal Brief Publication.
2. Introduction: The Obligation to Fulfill Domestic Market
Obligation (DMO) on Mining Sectors
Source: Art. 33 (3) of the 1945 Constitution of the Republic of Indonesia
The land, water, and the natural resources contained therein shall be controlled by the state and utilized for the greatest prosperity
of the people.
Association of Indonesian Mineral and Coal Energy Suppliers (ASPEBINDO)
“Coal Businesses prefer to export coal overseas rather than fulfill the Domestic Market Obligation (DMO) due to
the high disparity in international market prices, and to cover the penalty fines from the price difference in the
international market.”
A H R P L e g a l B r i e f
Source: https://bisnis.tempo.co/read/1626260/pengusaha-ungkap-alasan-pilih-ekspor-batu-bara-besar-besaran-dan-bayar-denda
Coal Within the Scope of State Ownership Rights
For the national interest, Indonesian government establishes a national policy prioritizing minerals and/or coal for domestic
purposes by determining production quantity, sales, and prices of metal minerals, specific non-metal minerals, or coal which
shall be further regulated by or based on government regulations.
Source: Art. 5 of Law No. 4/2009 Jo. Law No. 3/2020
Coal DMO Regulations
In the operation and production phase, the holders of Coal Mining Business License (Izin Usaha Pertambangan – “IUP”) or
Special Coal Mining Business License (Izin Usaha Pertambangan Khusus – “IUPK”) must prioritize the needs of minerals and/or
coal for domestic purposes.
Source: Art. 157 (1) of GR No. 96/2021
Setting the percentage of coal sales for domestic needs (DMO) to holders of Coal Mining Business License for the Coal
Production Operation stage (Izin Usaha Pertambangan tahap kegiatan Operasi Produksi – “IUP-OP”), Special Coal Mining
Business License for the Coal Production Operation stage (Izin Usaha Pertambangan Khusus tahap kegiatan Operasi Produksi
– “IUPK-OP”), Coal Mining Work Agreement for the Production Operation stage (Perjanjian Karya Pengusahaan Pertambangan
Batubara tahap Operasi Produksi – “PKP2B”), and IUPK as a Continuation of the Coal Commodity Contract/Agreement, at 25%
(twenty-five percent) of the actual coal production realization in the current year, for (1) the provision of electricity for public and
self-interest, and (2) raw materials/fuels for the industry.
DMO’s Percentage
Holders of the IUP-OP, IUPK-OP, PKP2B, and IUPK as a Continuation of the Coal Commodity Contract/Agreement are required
to submit a report on the realization of fulfilling domestic coal needs no later than 10 (ten) calendar days after the end of each
month.
Source: The First Dictum of MoEMR Decree No. 267/2022 Jo. MoEMR Decree. No. 399/2023
DMO Realization Report by Coal Producing Companies
Source: The Fifth Dictum of MoEMR Decree No. 267/2022 Jo. MoEMR Decree. No. 399/2023
The Preference of Coal Producing Companies to Export Coal
Regulation on DMO
3. Notes:
A: Compensation Tariff (USD/ton) based on coal quality and changes in the Reference Coal Price (HBA).
P: The obligation of coal sales for domestic needs (tons) based on the percentage of the sales obligation for domestic needs against the actual coal
production in the current year.
R: Realization of meeting domestic coal needs (tons).
A H R P L e g a l B r i e f
In late December 2021, Indonesian Government announced a ban on all Indonesian coal exports which was effective immediately to ensure
the fulfillment of coal supply for PLN and other domestic users. However, on 31 January 2022, Indonesian Government through the Ministry of
Energy and Mineral Resources (“MoEMR”) lifted the ban after result on further assessment shows the situation has gotten better.
Source: https://www.esdm.go.id/id/media-center/arsip-berita/ekspor-batubara-kembali-dibuka
In light of the situation at hand, MoEMR issued MoEMR Decree No. 267/2022 which stipulates, among others, penalties and sanctions
that could be imposed, based on the evaluation of the report on the realization of fulfilling domestic coal needs, on the holders of the Coal
Mining Business License for the Coal Production Operation stage, Special Coal Mining Business License for the Coal Production
Operation stage, Coal Mining Work Agreement for the Production Operation stage, and Special Coal Mining Business License as a
Continuation of the Coal Commodity Contract/Agreement who do not or fail to fulfill their DMO, including (1) compensation fund, (2)
penalty, (3) penalty and compensation fund.
Coal Export Ban in Late 2021
Penalties and Sanctions on DMO Violation
Source: The Sixth Dictum of MoEMR Decree No. 267/2022
The penalties and sanctions as regulated in the MoEMR Decree No. 267/2022 have been amended so that penalties and sanctions that
could be imposed, based on the evaluation of the report on the realization of fulfilling domestic coal needs, on the holders of the Coal
Mining Business License for the Coal Production Operation stage, Special Coal Mining Business License for the Coal Production
Operation stage, Coal Mining Work Agreement for the Production Operation stage, and Special Coal Mining Business License as a
Continuation of the Coal Commodity Contract/Agreement do not or fail to fulfill their DMO to pay compensation fee. The calculation for
said compensation fee is as follows:
Compensation fund = A X (P – R)
Should the relevant party fail to make payment for compensation fund above, said party shall be subject to the imposition of
progressive administrative sanctions, from:
1. prohibition on coal sales abroad within a maximum period of 30 (thirty) calendar days if the compensation funds are not paid by the
specified due date;
2. temporary suspension of all production operation activities for a maximum period of 60 (sixty) calendar days in the event the relevant
party fails to make payment of compensation funds during the period of prohibition on the sale of coal abroad as mentioned in point (1)
above;
3. revocation of IUP/IUPK or termination of PKP2B in the event the relevant party fails to make payment of compensation funds during
the period of temporary suspension of administrative sanctions as mentioned in point (2) above.
Source: The Seventh Dictum of MoEMR Decree No. 267/2022 Jo. MoEMR Decree No. 399/2023
Source: The Seventh Dictum of MoEMR Decree No. 267/2022 Jo. MoEMR Decree No. 399/2023
Source: The Sixth A Dictum of MoEMR Decree No. 267/2022 Jo. MoEMR Decree No. 399/2023
The compensation funds for fulfilling domestic needs mentioned above constitutes Non-Tax State Revenue
(Penerimaan Negara Bukan Pajak – “PNBP”).
Art. 1 Jo. Article 3 of MoF No. 17/2022
Previous Penalties and Sanctions
Violation of DMO by Coal Producing Companies and Its Sanctions
Current Penalties and Sanctions
4. A H R P L e g a l B r i e f
Ministry of Energy and Mineral Resources
The government, through MoEMR, has announced its intention to implement a new
contribution scheme for coal mining companies through Managing Agency Partner (MIP) in
January 2024. However, the underlying regulations on the implementation of coal
compensation funds under MIP is still under completion.
The Purpose of the Establishment of MIP
The MIP institution itself will be tasked with collecting and managing contributions from
coal entrepreneurs to cover the price difference between the market price and the DMO
price. The management of the coal compensation funds will be carried out by three state-
owned banks, which will act as the MIP, namely (1) PT Bank Mandiri (Persero) Tbk., (2) PT
Bank Negara Indonesia (Persero) Tbk., and (3) PT Bank Rakyat Indonesia (Persero) Tbk.
Source: https://www.cnbcindonesia.com/news/20240102133537-4-502044/iuran-
baru-batu-bara-jadi-berlaku-di-januari-ini-kata-esdm
Source: https://ekonomi.bisnis.com/read/20231107/44/1711877/tak-kunjung-
terbit-apa-kabar-skema-pungut-salur-iuran-batu-bara
Exemptions in Fund Collection by MIP
The obligation of the fund collection and distribution scheme for coal
compensation in DMO through the MIP scheme will not be applied to coking
coal or metallurgical coal, which is typically used as a source of carbon in the
iron and steel industry. However, they are still required to fulfill the DMO.
Source: https://ekonomi.bisnis.com/read/20231121/44/1716528/ini-jenis-batu-bara-yang-
bebas-dari-kewajiban-pungut-salur-mip
Arifin Tasrif as the Minister of Energy
and Mineral Resources
The Discourse on the Implementation of Managing Agency Partner
(Mitra Instansi Pengelola - MIP)
In connection with the collection of compensation funds as sanction imposed against the Coal Producing Companies should said parties
fail to fulfill DMO, Indonesian Government who previously planned to carry out said collection by BLU has now changed its stance to use
MIP.
5. BLU is an institution within the government established to provide services to the public, including the provision of goods and/or services sold
without prioritizing profit-seeking. In carrying out its activities, BLU operates based on principles of efficiency and productivity.
BLU operates as a working unit of the state ministry/institution/local government for the purpose of providing public services, with its management
based on the authority delegated by the relevant parent agency. It is an integral and inseparable part from the state ministry/institution/local
government as the parent agency. Accordingly, the Minister/Head of the institution/governor/regent/mayor is responsible for the implementation of
the policy of providing public services delegated to BLU in terms of benefits of the services produced.
BLU has the authority to charge fees to the public as compensation for goods and/or services provided. This compensation is determined in the
form of tariffs based on the calculation of costs per unit of service or the return on investment funds. Furthermore, service tariffs must take into
account the following aspects:
a. continuity and development of services;
b. purchasing power of the community;
c. principles of fairness and appropriateness; and
d. healthy competition.
A H R P L e g a l B r i e f
Overview on BLU and Coal BLU
Art. 1 (23) of Law No. 1/2004
Change From Coal BLU Scheme to Coal MIP Scheme
Art. 3 (1), (2), and (3) of GR No. 23/2005
Art. 9 (1), (2), and (3) of GR No. 23/2005
In relation to coal, the existence of BLU was meant to eliminate the high disparity between the international market coal price and coal domestic
price as it principally collects the compensation fee from various coal producing companies and utilize said fee to cover the market price
difference. Despite the urgency to immediately establish coal BLU, the underlying regulation to coal BLU has not been executed yet due to
various reasons, among others, being the uncertainty of the underlying regulation type (Presidential Regulation or Government Regulation).
The determination of the direction of the performance indicators (Key Performance Indicators) of BLU should at least take into account:
a. themes and focuses of state revenue and expenditure budgets;
b. government policies; and/or
c. the fulfillment of basic services (health, education, and housing), empowerment of Micro, Small, and Medium Enterprises (“MSMEs”), and
poverty alleviation.
Art. 55 (2) of MoF Reg. No. 29/2020
In early January 2023, the Government decided to change the coal BLU scheme to coal MIP scheme taking into consideration the requirements
set under Article 9 of GR No. 23/2005 and Article 55 (2) c of MoF Reg. No. 129/2020 which principally stipulates the evaluation of key performance
indicators of BLU is based, among others, on the fulfilment of basic needs (health, education, housing), empowerment of MSMEs, and poverty
alleviation. Indonesian government believes BLU is not the right entity to manage the collection and distribution of money from Coal Levy
Scheme as said scheme will not involve the fulfilment of basic needs (health, education, housing), empowerment of MSMEs, and poverty
alleviation. Should the coal BLU scheme be implemented, the Coal Levy Scheme would need to involve allocation of around 15% - 20% of the
Coal Sales Levies collected in order to satisfy the requirements applicable to BLU, something that is essentially contradictory to the very idea
of coal BLU scheme.
Definition of BLU
Comparison Between the Implementation of Coal BLU and Coal MIP
Scheme (1/2)
Status of BLU
Service Tariffs as one of BLU’s authorities
Key Performance Indicators of BLU
The Idea of Coal BLU
6. MIP of PNBP is an organization that assists the PNBP Manager Agency in carrying out some of the PNBP management activities
as mandated by the regulations.
A H R P L e g a l B r i e f
Overview on MIP and Coal MIP
Art. 1 (17) of Law No. 9/2018
MIP could be in the forms of a state-owned enterprise, regional-owned enterprise, private enterprise, or other entities in
accordance with prevailing law and regulations. MIP may be appointed in accordance with a law/government
regulation/presidential regulation, and/or assignments from the PNBP Manager Agency Leadership in carrying out PNBP
Management, while still considering the responsibilities of the PNBP Manager Agency.
Art. 8 (1) and (3) of MoF Reg. No. 55/2021 Jo. MoF Reg. No. 58/2023
In carrying out part of the duties of managing PNBP, the MIP is tasked with: a. collecting PNBP; b. depositing PNBP; and/or
c. pursuing outstanding PNBP, based on the provisions of laws and regulations.
Art. 8 (1a) of MoF Reg. No. 55/2021 Jo. MoF Reg. No. 58/2023
According to Article 4(3) of Law No. 9/2018, various types of PNBP can be regulated by Law, Government Regulation, or
Ministry of Finance (“MoF”) Regulation. Currently, the MoEMR manages different PNBP types and rates under GR No. 26/2022
and MoF Reg. No. 17/2022. However, the Coal Sales Levy is not considered a form of PNBP under these regulations.
Despite this, the government now has the authority to impose PNBP on Coal Producing Companies as the law allows the
government to impose PNBP on holders of mining licenses, such as IUP/IUPK/Community Mining Licenses (Izin Pertambangan
Rakyat)/Rock Mining Licenses (Surat Izin Pertambangan Bantuan) as stated in Article 128 of Law No. 4/2009. Law No. 4/2009
Jo. GR No. 2/2020 allows the government to designate the Coal Sales Levy as PNBP and use a MIP to manage the Coal Levy
Scheme.
Art. 8 (1a) of MoF Reg. No. 55/2021 Jo. MoF Reg. No. 58/2023
The involvement of state-owned enterprise, regional state-owned enterprise, private entities, and other entities as MIP
The elimination of financial obligation to pay for the compensation for the purpose of education, healthcare, and other social
services which was previously mandatory in coal BLU scheme.
.
What are the differences between BLU and MIP?
Overall Tax Burden in Coal MIP Scheme
Prior to 2022, all coal sales were exempted of VAT. However, since 2022, domestic coal sales have been subject to VAT of 11%.
Additionally, the Coal Producing Companies are obliged to pay for coal production royalty up to 13,5% on the first domestic sale or
export of their coal production. Issues regarding VAT and royalty production arise as both are levied on 100% of the selling price of
coal and said issues could potentially be intensified by the implementation of Coal Sales Levy. One of the ways to handle this issue
would be to impose VAT exemption for certain domestic coal sales.
Comparison Between the Implementation of Coal BLU and Coal MIP
Scheme (2/2)
Definition of MIP
The Forms and Establishment of an MIP
The Duties of MIP
Coal MIP to Manage Coal Levy Scheme as Coal Sales Levy could be Categorized as PNBP
7. A H R P L e g a l B r i e f
Coal Sale and Purchase
Agreement
PLN
Coal Producing Companies
Notes:
The coal price is going to be determined by the market price. However, PLN
will only pay the Coal Producing Companies according to the DMO price
[USD 70/ton or USD 90/ton] as the payment for the difference between
market price and DMO price will be carried out by coal BLU.
Coal Producing Companies who do not comply
with DMO quota
Coal MIP
Coal producing companies pay the
compensation funds to coal MIP.
Coal MIP pays the compensation funds to the coal producing
companies to cover the difference in price market.
Payment from PLN as the
domestic coal user, which
equals to:
DMO quantity supplied X
Quality Adjusted USD 70 – 90
Concessional Coal Price +
VAT of 11%
Payment from coal MIP as the
compensating payment
agency, which equals to:
DMO quantity supplied X
Quality Adjusted HPB Price +
VAT of 11% - First Invoice
Amount
Market Price Payment
The coal producing companies shall
receives 2 payments as follows:
Win-win Solution
It is important to note that the underlying laws and regulations regarding coal MIP is in the finalization process.
Therefore, the illustration above will be subject to change should the regulation be executed.
Coal BLU scheme principally
brings a win-win solution for the
situation at hand by providing
incentives for coal producing
companies to fulfil the DMO quota
without increasing burden on the
state budget as well as
disincentive to coal producing
companies who do not provide
coal according to DMO quota.
Government has stated that
three state-owned enterprises
to act as coal MIP.
What are the Impacts of the Implementation of Coal MIP Scheme
for Coal Producing Companies?
Coal Producing Companies who produce coal with
quality specifications required by or suitable for
PLN and other domestic users, will:
• probably continue to pay the production royalty at
current rates;
• continue to be subject to the DMO quota;
• pay the coal sales levy on all their coal sales,
both domestic and export;
• possibly no longer pay VAT on domestic coal
sales; and
• receive the quality adjusted coal price marker
(Harga Pokok Batubara – HPB) price for the
DMO quantity supplied by them to PLN in 2
separate payments and from 2 separate parties.
Coal Producing Companies who do not
produce coal with quality
specifications required by or suitable
for PLN and other domestic users, will:
• probably continue to pay the
production royalty at current rates;
• not be subject to the DMO quota;
• pay the coal sales levy on all their
coal sales, both domestic and export;
and
• possibly no longer pay VAT on
domestic coal sales.
Coal Traders, will:
• not be subject to the DMO
quota;
• pay the coal sales levy on
all their coal sales, both
domestic and export; and
• possibly no longer pay VAT
on domestic coal sales.
Illustration on the Implementation of Coal Levy Scheme in MIP
8. Tanzanian’ Law
Under a similar regulatory framework, Tanzania has implemented within the
terms of Domestic Supply Obligation (DSO) for oil and gas sectors. The
DSO mandates that Tanzanian oil and gas operators must prioritize meeting
domestic market demands, essentially ensuring that natural gas production is
allocated for domestic needs before considering export. This policy is a
pivotal step towards diversifying the gas economy, leveraging natural gas
resources for energy infrastructure development, such as power plant
construction, and supporting the growth of energy-intensive industries.
TPDC effectively monopolizes both upstream and downstream operations, implementing a 'production sharing agreement'
(PSA) scheme. The PSA preemptively regulates domestic market supply fulfillment and includes incentives for compliance.
Thus, the efficacy of PSAs in fostering sustainable development, ensuring equitable wealth distribution, and promoting long-
term economic stability represents a significant area for analysis.
In contrast to Indonesia's BLU
‘Fund-Collection' scheme in the
coal sector, which emphasizes
sanctions for those who non-
comply with its DMO, Tanzania
employs a different approach
through its state-owned
enterprise, the Tanzania
Petroleum Development
Corporation (TPDC). Business Entity
Production Sharing
Agreement
Key Takeaways
Control over Distribution: Incentives for DMO Compliance:
The implementation of the MIP levy-disbursement mechanism,
which emphasizes sanctions for parties failing to meet the
DMO, can be further intensified to not only guarantee energy
security but also to incentivize producers to align their
operations with national interests. By offering tax breaks,
expedited licensing processes, and additional benefits, BLU-
MIP encourages companies to prioritize the domestic market,
thereby promoting a stable and reliable coal supply within
Indonesia.
Considering that the MIP functions merely as an entity
responsible for the collection and disbursement of
compensation funds, it follows that its limited authority is
sporadic in nature and necessitates a robust cooperation
mechanism with the Ministry of Energy and Mineral
Resources, given the separation of these responsibilities
across distinct entities.
Comparative Overview on Domestic ‘Market’ Obligation
on Tanzanian Legal Framework
A H R P L e g a l B r i e f
9. Considering that, to date, there is no Presidential Regulation, Ministerial Regulation, or Ministerial Decree serving as the implementing
guidelines for the MIP revenue-sharing scheme, this situation creates ambiguity and potential legal risks for stakeholders. The absence of a
distinct legal framework poses a challenge to the efficient enforcement and comprehension of the coal MIP scheme. Furthermore, the lack of
well-defined implementation procedures may impede the proper execution and adherence to the MIP regulations.
Effective coordination and engagement stand as pivotal challenges in the implementation of coal MIP scheme. The collaboration between
the government, coal producers, and other stakeholders requires a harmonious and structured approach to yield mutually agreeable
outcomes. The challenge lies in establishing a framework that encourages robust communication and cooperation among these diverse
entities.
The legal landscape must evolve to support and enhance transparent and equitable stakeholders' involvement in coal MIP scheme. A well-
crafted legal framework becomes the linchpin, ensuring that the coordination and engagement efforts are not only effective but also
compliant with legal standards. This is paramount for the success of coal MIP scheme, demanding legal structures that not only facilitate
collaboration but also uphold principles of fairness and transparency in the decision-making process.
Fluctuations in coal market prices pose a significant challenge to the financial sustainability and equilibrium of the MIP scheme. The
inherent volatility in these prices demands a strategic approach to navigate the uncertainties and maintain the stability envisioned by the
MIP Scheme.
The legal framework governing coal MIP scheme must be intricately designed to accommodate the dynamic nature of coal market prices.
It requires the incorporation of provisions that enable adaptability, ensuring the MIP scheme remains resilient in the face of changing
economic conditions. This legal foresight becomes crucial for maintaining the financial stability of the MIP Scheme.
Foreseeing potential adverse economic effects is paramount, encompassing concerns such as reduced competitiveness and increased
operational costs for coal producers. These challenges, if unaddressed, may undermine the overall economic viability of the coal industry.
Legal Uncertainty and Implementation Complexity
1
Stakeholders Engagement
2
Market-Coal Dynamic
3
Proactive legal considerations are imperative to identify, address,
and mitigate any negative economic repercussions on the coal
industry stemming from the implementation of coal MIP scheme.
Establishing legal safeguards becomes crucial for sustaining a
competitive and economically viable coal sector, aligning industry
interests with the broader economic landscape.
In essence, overcoming these financial and economic challenges
requires a comprehensive legal framework. Such a framework not
only ensures the adaptability of coal MIP scheme to market
dynamics but also safeguards the long-term economic health and
competitiveness of the coal industry.
A H R P L e g a l B r i e f
Future Quests: Unveiling Conclusions and Forging Paths
Ahead
10. We will continue to follow the developments on this topic and provide additional information as it
becomes available. If you have any questions on this topic, please contact:
Stacia Faustine
stacia@ahrplaw.com
Tariq Hidayat Pangestu
tariq@ahrplaw.com
Putra Pengayoman
putra@ahrplaw.com
This publication has been prepared by AHRP for educational and informational purposes only. The information contained in this publication is not
intended and should not be construed as legal advice. Due to the rapidly changing nature of law, AHRP makes no warranty or guarantee
concerning the accuracy or completeness of this content. You should consult with an attorney to review the current status of the law and how it
applies to your circumstances before deciding to take any action.
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