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Why Indonesia has exempted the oil and gas sector from new export proceeds rule?

by admin January 23, 2025
January 23, 2025

Oil and gas exporters in Indonesia will be exempted from the new rule mandating that all proceeds from natural resource exports be kept onshore for a year, according to a Reuters report. 

The exemption comes after companies raised concerns about the Indonesian rule’s potential impact on their cash flows and urged adjustments.

Jakarta announced on Tuesday that all exports with a shipping document valued at $250,000 or more will be subject to the new regulation effective March 1.

At present, exporters are mandated to retain only 30% of their total earnings for a minimum period of three months.

This requirement has led to increased interest costs for some exporters, Reuters said. 

New rule to bolster Rupiah

Jakarta announced that the decision was undertaken to bolster the supply of the US dollar to stabilize the Indonesian rupiah, which had fallen to a 6-month low in January. 

The decision is also likely to support the largest economy in Southeast Asia.

Susiwijono Moegiarso, an official at Coordinating Ministry of Economic Affairs, told reporters on Wednesday that oil and gas exporters would not be subject to the new policy due to the nature of their business.

According to the report, Moshe Rizal, the head of the investment committee of the Association of Oil and Gas Companies, stated earlier on Wednesday, that the implementation of the rule should be gradual due to its potentially “extraordinary” impact on the cash flow for the operational costs of the companies.

It was unclear whether the 30% retention rule would still be required.

Later this week, the government will meet with companies to discuss incentives and gather feedback, according to Reuters. 

Addressing challenges

To address the challenges related to working capital, the government has proposed a potential solution: allowing businesses to utilise their earnings as collateral when securing a loan. 

However, this proposition has been met with criticism from industry groups. 

They argue that this measure is still disadvantageous to businesses as it requires them to bear the burden of loan interest, which ultimately increases their overall expenses. 

This additional financial strain could counteract the intended benefits of the government’s initiative and further exacerbate the difficulties faced by companies in managing their working capital effectively.

Cocoa industry most affected  

The Indonesian Employers Association (Apindo) stated on Tuesday that the local cocoa industry has been forced to take loans at market rates while domestic deposits earn lower returns.

Due to this, they are paying up to a 6% interest rate gap under the current 30% retention rule.

The business group Apindo has urged the government to apply the new 100% export proceeds rule selectively, rather than across the board.

They argue that cocoa and fishery businesses are among the most affected by the current rule.

Apindo Chairwoman Shinta Kamdani told Reuters:

Our input and concerns have been received by the government so we are asking for more detailed explanation of the latest government position.

Indonesia’s central bank has announced that it will continue to offer term deposit instruments with competitive returns and FX-denominated securities, according to the report. 

These measures support the new rule and provide alternative investment options for proceeds.

The post Why Indonesia has exempted the oil and gas sector from new export proceeds rule? appeared first on Invezz

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