[SMM In-Depth Analysis] Indonesia's "Three Fires" of Nickel Resource Control Policies: Where Will the "Third Fire" of PNBP (Non-Tax State Revenue) Adjustment Burn?

Introduction: On March 18, Indonesia's Ministry of Energy and Mineral Resources (ESDM) sent a strong signal that new rules related to increasing mineral and coal royalties would be issued before Eid al-Fitr or by March 31, 2025. Meanwhile, the increase in mineral and coal royalties will target coal, nickel, copper, gold, silver, and tin metals.

Tri Winarno, Director General of Minerals and Coal at the Ministry of Energy and Mineral Resources, stated that the draft revision of the regulation is currently submitted to the State Secretariat (Kemensetneg). According to him, all processes are nearly complete, and he revealed that the new rules related to increasing mineral and coal royalties are likely to be issued before Eid al-Fitr.

According to SMM, the Indonesian market currently holds a strong expectation for the implementation of this policy. If the policy is implemented as scheduled, it is expected to cause an increase in costs for nickel miners to some extent, potentially leading to a further rise in nickel ore prices. Downstream smelters may face the risk of increased procurement costs.

For the consolidation of the PNBP-related policy revision process:
This adjustment to Indonesia's PNBP-related policies is a revision to the 2022 Indonesian Government Regulation No. 26, which pertains to the types and tariffs of non-tax state revenues applicable to the Ministry of Energy and Mineral Resources, as well as an amendment to the 2022 Government Regulation No. 15, concerning taxation and the handling of PNBP (non-tax state revenue) in the coal mining business sector. In 2022, the royalty for nickel ore resources in Indonesia's PNBP was set at a fixed rate of 10%.

On March 10, according to foreign media reports: The Indonesian government proposed increasing the royalties paid by mining companies to alleviate public finances strained by President Prabowo's spending plans. Within March, the Indonesian Ministry of Energy and Mineral Resources (EDSM) continued to advance legislation aimed at raising taxes on all products from copper to coal.

According to SMM, this proposal came as the Indonesian government grappled with the substantial costs of President Prabowo's flagship programs, including free school lunches and the Danantara national investment fund. After the VAT increase proposal was downplayed, ministries were asked to cut budgets to fund these multi-billion-dollar policies. For nickel ore production, the uniform tax rate of 10% will be replaced by a 14% to 19% levy, depending on the benchmark price determined by the government.

On March 18, Tri Winarno, Director General of Minerals and Coal at the Indonesian Ministry of Energy and Mineral Resources, stated that the draft revision of the bill is currently submitted to the State Secretariat (Kemensetneg). According to him, all processes are nearly complete, and he revealed that the new rules related to increased mineral and coal royalties are likely to be issued before Eid al-Fitr.

Indonesia's Nickel Resource Control Policies: The "Third Fire" of PNBP (Non-Tax State Revenue) Adjustment, Where Will It Burn?
Since 2025, the Indonesian government has frequently issued policies, from the SIMBARA system implemented at the beginning of the year, to the adjustment of the HMA calculation basis in the benchmark price for metallic minerals at the beginning of March, and the recently escalating suggestions for PNBP (non-tax state revenue) adjustments. What is the connection between these policies? Why does the Indonesian government keep introducing new policies? Will the third fire of tax rate adjustments ignite? SMM will provide an in-depth analysis below.

1. The First Move: Quantity, SIMBARA System
Since the beginning of 2025, the SIMBARA system has been officially launched, allowing the Indonesian government to track the sales of nickel ore in real time. Combined with the RKAB quota system, the Indonesian government can monitor the quantity across all stages including mining, processing, production, sales, and export of nickel ore. The image below shows the specific content and process of the SIMBARA system:

2. The Second Move: Price, HMA Price Adjustment
On March 1, 2025, the Indonesian government announced the first batch of HMA prices for March 2025, which included the HMA calculation methods for 19 types of metals or ores, such as nickel, cobalt, lead, zinc, gold, and chrome ore. This release adjusted the HMA calculation method from a once-a-month revision at the beginning of each month to twice-a-month revisions, at the beginning and middle of each month. Additionally, it introduced the benchmark sales price announcements for another seven nickel-related products. This adjustment enabled the Indonesian nickel ore prices to more quickly reflect the real-time fluctuations of the market nickel prices, reducing the pricing lag.SMM's analysis of the policies related to price adjustments for HMA and HPM in Indonesia can be found in the article titled "【SMM In-Depth Analysis】New Regulations Again? The Impact of Numerous New Policies in Indonesia on the Nickel Market":

3. The Third Move: Taxes, PNBP Adjustment Proposal
On March 8, 2025, Indonesia's Ministry of Energy and Mineral Resources proposed adjustments to the country's non-tax state revenue (PNBP), affecting industries such as nickel, coal, copper, and gold. The tax rates for relevant nickel products were suggested to change from a fixed value to a variable rate based on HMA prices. For the nickel industry, this primarily involves four products: nickel ore, FeNi, NPI, and nickel matte. The following chart illustrates the comparison between the current and proposed tax rates:

From the above chart, it can be seen that the proposed tax rates exhibit two major characteristics: an overall increase and a tiered rise. Taking nickel ore as an example, when the HMA price exceeds $31,000/mt (metal content), the tax rate reaches 19%, nearly doubling the current 10% rate. However, considering the historical HMA price trend and the 18,000 line, SMM analysis suggests that after the implementation of this policy, the tax rate will mostly remain in the first tier, with only a small portion of time reaching the second tier.

Summary: A Synergistic Increase in Volume, Price, and Tax, and the Logical Loop Behind Policies
Based on the above analysis, it can be concluded that the SIMBARA system helped the government control volume, the HMA pricing formula enabled the government to manage prices, and tax rate adjustments allowed the government to increase taxes. Together, these three factors contributed to an increase in the government's tax revenue. However, does blindly raising prices and tax rates necessarily lead to an increase in government tax revenue?
According to the economic theory of the Laffer Curve, there is an inverted U-shaped relationship between a government's tax revenue and tax rates. When tax rates are below a certain threshold, increasing them can boost government tax revenue. But once this threshold is exceeded, further increases in tax rates will instead result in a decrease in government tax revenue.
Therefore, the introduction of this series of new policies by the Indonesian government reflects its desire to achieve a balance between tax revenue, prices, and the market. On one hand, it aims to promote market development and enhance the price and value of nickel products. On the other hand, it seeks to increase government tax revenue through tax rate adjustments while minimizing the impact on market traders.
Moreover, as both prices and tax rates are closely linked to HMA, and the correlation between HMA and nickel market prices has increased after adjustments, SMM will continue to monitor whether the Indonesian government will introduce new policies affecting the market price of nickel in the future.

How would the implementation of PNBP-related policies impact nickel industry enterprises in Indonesia?
1. Before discussing the impact, it is necessary to clarify the enforcement and applicable targets of the policy
In the "Guidelines for Designating Benchmark Prices for Metal Mineral and Coal Sales" issued by ESDM in mid-February, Articles 2 and 3 specify the entities required to use HPM (Indonesia's benchmark price for mineral sales) as the minimum sales price. The applicable targets are: "Operators at the production stage holding a Mining Business License (IUP), operators at the production stage holding a Special Mining Business License (IUPK), and holders of special mining business licenses as a continuation of contracts/agreements, including Contract of Work holders and Coal Mining Cooperation Agreement holders." For enterprises related to the Indonesian nickel industry, this scope includes all local mine enterprises and smelters using captive mines in Indonesia for nickel ore smelting (a total of four, namely Vale, Antam, Weda Bay Nickel, and Wanatiara).

SMM expects that if the PNBP policy is implemented, it will likely apply to companies holding IUP/IUPK qualifications and not include other Chinese smelters. According to SMM, Chinese companies in Indonesia with IUI qualifications are still within their "tax-free period," and this policy may not directly affect most pyrometallurgy and hydrometallurgy enterprises. The specific situation will need to be confirmed after the policy is implemented, and SMM will continue to track the latest policy developments in the Indonesian market.

2. What impact would the implementation of the PNBP policy have on nickel ore prices for the year?

Starting from 2025, the premium for Indonesian nickel ore has been continuously rising, significantly supporting the overall cost of the nickel industry. In the short term, in terms of supply, the rainy season in Sulawesi this year has lasted relatively longer, affecting the mining and transportation of nickel ore and slowing down the recovery of supply after the rainy season in major mining areas such as Sulawesi. Additionally, at the end of March, coinciding with the Eid al-Fitr holiday, most Indonesian companies will take a week off, further tightening the already tight supply schedule. On the demand side, inventories of NPI smelters in Indonesia are generally low, leading to strong restocking needs. The tight supply and demand structure has created a situation where nickel ore in the Indonesian market is in high demand. Looking ahead, there are expectations for new production lines in Indonesian pyrometallurgy to start production, and the ramp-up and commissioning of hydrometallurgy projects are in full swing. SMM predicts that under the cautious quota issuance policy by the Indonesian government, the tight situation for local ore in Indonesia may continue throughout the year.

The following chart shows the prices of 1.2% and 1.6% Indonesian local ore from SMM.

In this environment, mines still maintain strong bargaining power. If the policy is implemented, the increased sales costs for mines may further push up nickel ore prices, thereby raising the cost of Indonesian nickel products.

3. What would be the impact of the PNBP policy on the costs of nickel and related smelting products?

If the PNBP policy is implemented with the same calculation method as the current proposal, the HMA price for the second half of March would be $15,534.62/mt, and the royalty rate to be paid would be 14%, an increase of 4% from the original 10% royalty rate. Based on SMM's survey, using this week's price of Indonesia's local ore at 1.6% CIF, which was 46.5-51.5$/wmt, mining companies would need to pay an additional $2/wmt. Additionally, according to the SMM survey, the original royalty for hydrometallurgy ores below 1.5% grade was 2%. This change in royalties may primarily target high-grade pyrometallurgy ores, and whether the royalties for hydrometallurgy ores will be revised and if it will affect MHP costs remains to be confirmed after the policy is implemented. Assuming that the increased cost of nickel ore is fully passed on to the selling price, for downstream smelters, the rise in nickel ore costs would lead to an increase in NPI costs by about $200/mt (metal content) and high-grade nickel matte costs by about $210/mt (metal content). The following is a chart showing the monthly cost of Indonesian NPI by SMM:

Summary: Starting in 2025, the Indonesian government has introduced a series of nickel resource control policies, all reflecting its intention to strengthen local resource management, increase tax revenue, and enhance Indonesia's influence in related industries.

The significance of government resource control policies is reflected in their profound impact on national security, economic sovereignty, sustainable development, and the international competitive landscape. First, resource control is a core means of maintaining national strategic security. For example, as the world's largest producer and exporter of rare earths, China, through export restrictions and technological controls, not only curbs environmental issues caused by over-exploitation but also strengthens its dominant position in global high-tech, military, and new energy industry chains. Second, resource control drives the evolution of international rules and cooperation. The US, through the Dodd-Frank Act, regulates conflict minerals, while the EU requires imported ores to meet RMI certification standards, both demonstrating the use of policy to guide the standardization of global resource governance, promoting supply chain transparency and sustainability. Furthermore, resource control is directly related to economic resilience. Countries like the US and Japan, through supply chain security policies (such as the US National Strategic Plan for Advanced Manufacturing and Japan's Economic Security Promotion Act), focus on reducing dependence on a single country, enhancing the diversified acquisition capabilities of critical resources, to address geopolitical risks and technological competition. Finally, resource control also carries the mission of balancing environment and development. It is evident that global resource policies are not only tools for inter-state competition but also important foundations for building a fair, secure, and green international order.

As part of the "resource control policy package," whether the Indonesian government's PNBP policy can achieve the expected results after successful implementation still needs to be tested by the market.