Downstreaming, which was the flagship programme of the Joko Widodo administration, will be continued by President Prabowo Subianto. It is also believed that the next administration will expand the economic aspects of downstreaming and consider absorption by the domestic market.

Downstreaming, which will be developed into industrialisation, is expected to make a major contribution to boosting Indonesia's Gross Domestic Product (GDP) growth.

To realise this goal, it is necessary to improve regulations that pay attention to aspects of certainty of raw materials, markets, and attractive incentives for industrial entrepreneurs. It is also necessary to pay attention to the Incremental Capital Output Ratio (ICOR) which is considered still high due to the high cost of production and transportation. This is what makes investment in the country less attractive.

The government needs to determine export priorities and market needs. According to him, different treatment for downstream products to fulfil the domestic industry can be done so that producers are not only export-oriented.

Legal Analysis

The Government has enacted Government Regulation No. 5 of 2021 on the Implementation of Risk-Based Business Licensing (‘GR 5/2021’), which covers downstream business activities in the energy sector, including processing (including refining), transportation, storage, and commodity trading. This regulation is also aligned with Law No. 4/2009 on Mineral and Coal Mining, which has undergone several amendments, most recently through Government Regulation in Lieu of Law No. 2 of 2022 (‘Law 4/2009’). This regulation requires holders of Mining Business Licences (‘IUP’) and Special Mining Business Licences (‘IUPK’) to process or refine mined minerals domestically.

In addition, Law 4/2009 also emphasises the importance of sustainability and environmental aspects in mining. One of the main requirements for obtaining an IUP is to fulfil environmental requirements, such as reclamation and post-mining plans, as stipulated in Government Regulation No. 96/2021 on the Implementation of Mineral and Coal Mining Business Activities and its amendments (‘PP 96/2021’).

It is interesting to note that in relation to mineral downstreaming, the government has issued Minister of Energy and Mineral Resources Decree No. 69/2024 on the Determination of Commodity Types Included in the Strategic Mineral Classification (‘Decree 69/2024’), which stipulates the types of commodities included in the strategic mineral category. Decree 69/2024 serves as a guideline for the government in setting mining sector policies, including the granting of business licences and related fiscal policies.

Recommended Actions

Business players are advised to start designing strategies to deal with downstream mining policies while waiting for regulatory clarity that is expected to encourage investment in the downstream sector. Initial steps that can be taken include strengthening internal capabilities to meet sustainability standards, especially those related to the green economy which is expected to be the main focus of the policy.

In addition, businesses can also consider investing in environmentally friendly technologies that support sustainable operations in the downstream industry, while waiting for clearer regulations.

Source: hukumonline.com