Indonesia's mining quota U-turn risks raising operational costs and hurting investment: analysts
'Transitioning from a three-year to a one-year period will heighten regulatory uncertainty for miners,' noted Amelia Haines, commodities analyst at BMI. 'Annual quotas will require companies to engage with regulatory authorities more frequently, potentially lengthening permitting timelines and diverting resources to compliance activities.'
The Indonesian government will press ahead with implementing the policy in October, despite opposition from players in the mining industry.
The move would roll back a 2023 reform to the work plan and budget system, known locally as RKAB, which extended quota validity from one year to three. Miners in Indonesia must get RKAB approval to decide how much of a mineral resource they can extract over a set period.
That longer cycle was intended to help miners plan production better and reduce administrative costs.
Energy and Mineral Resources Minister Bahlil Lahadalia said on Monday (Aug 11) that the U-turn aims to tackle oversupply in key commodities such as coal and nickel, which have experienced significant price volatility, partly due to surging Indonesian output.
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The government believes that more frequent reviews will enable it to better align production with market demand, helping to avoid price collapses.
'Indonesia supplies 45 per cent of the world's thermal coal exports. When prices drop, there's little we can do; demand is low while supply is high. We will revise the policy without exception to maintain stability,' the minister noted.
Damage control
Indonesia is the world's largest producer of nickel, a key component in stainless steel and electric vehicle batteries, and more frequent quota reviews would give the government greater control over supply. As of the first half of this year, the country has produced 357.6 million tonnes of coal and 220 million tonnes of nickel ore.
However nickel prices have come under pressure in recent years as a surge of Indonesian output has flooded the global market . The government has set nickel production quotas at 296.1 million tonnes for 2025 and 261.4 million tonnes for 2026, though the final approval for the 2026 quota remains uncertain.
The country has also become a major supplier of coal, iron ore, and other minerals, giving it significant influence over global supply flows. However, some observers say its ability to sway prices is far more limited than officials had anticipated.
Bill Sullivan, senior foreign counsel at Jakarta-based law firm Christian Teo and Partners, questioned whether shortening the RKAB period will truly enhance price stability.
'I find it impossible to see how this improves price stability for mineral products,' he said. 'It is much more likely that the government has belatedly realised it overestimated Indonesia's ability to influence world prices, and now needs to more carefully control approved production quotas to avoid putting further downward pressure on prices.'
Sullivan characterised the change as 'damage control' and warned that it would reinforce the longstanding narrative of regulatory unpredictability in Indonesia.
'The shorter the period of the approval, the less certainty mining companies have as to their future production, sales, revenue and profitability,' he explained. 'That lack of certainty operates as a constraint on their ability to secure additional financing or investment.'
Burden on cost
While more frequent quota adjustments may give the government flexibility to respond to market fluctuations, overall increase in administrative burden could weigh on companies' earnings and raise their operational costs.
BMI said that it may also reduce regulatory certainty, potentially discouraging capital investment particularly in long-term projects with substantial upfront costs.
Research by Shanghai Metals Market (SMM) noted that the introduction of the one-year RKAB for the 2026 period is expected to keep tin prices volatile going forward, particularly on the Shanghai Futures Exchange.
'Investors need to closely monitor changes in international macroeconomic policies and domestic supply-demand conditions, and operate with caution,' SMM wrote in its research, published on Aug 4.
Industry groups have yet to formally respond to the proposal, but mining executives had previously backed the three-year RKAB cycle, citing its benefits in reducing bureaucracy and improving long-term planning.
Gita Mahyarani, acting executive director of the Indonesian Coal Mining Association, said that reverting to annual approvals would require more frequent paperwork, site inspections, and compliance reporting, all of which increase costs and divert management's focus from operations.
South-east Asia's largest economy has often faced criticism from investors over its lengthy and complex bureaucracy, a challenge that prompted the previous administration under president Joko Widodo to streamline licensing procedures and make them more seamless, aiming to provide greater certainty for businesses.
Nickel producers in Indonesia's Sulawesi region faced a supply crisis a few years ago and had to import additional ore from the Philippines due to delays in local permitting and production disruptions caused by severe weather. As a result, in 2023 the government decided to extend the validity of mining production plans to three years.
Analysts say the new measure could have unintended consequences on supply chains. Delays or unpredictability in quota approvals could disrupt exports, undermine Indonesia's reputation as a reliable supplier, and push buyers towards competitors.
The change may also make Indonesian miners less competitive compared with producers in other major coal-exporting countries that operate under more stable regulatory regimes. 'Buyers value consistency,' Haines from BMI said. 'Frequent changes to rules and approvals can make them think twice about long-term contracts.'
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