The Indonesian Currency Law and Bank Indonesia ("BI") Regulation No. 17/3/PBI/2015 regarding the Mandatory Use of Rupiah restrict most transactions within Indonesian territory from being carried out using foreign currency. Core upstream activities in Indonesia are exempted from this requirement for a certain period of time, such as expenditures in relation to the first three years of the exploration period (the "Firm Commitment" period), over/under lifting, and domestic oil and gas sales transactions by upstream players, which are exempted for 10 years as of February 23, 2016.
Minister of Trade ("MOT") Regulation No. 94 of 2018, as amended by MOT Regulation No. 102 of 2018 regarding Provisions on the Use of a Letter of Credit for the Export of Certain Goods, exempts the export of oil and gas products to be paid through a Letter of Credit ("L/C"). Payment using an L/C was previously required under MOT Regulation No. 94 of 2018.
In January 2019, the Government issued Government Regulation No. 1 of 2019 regarding Export Proceeds from the Exploitation, Management, and/or Processing of Natural Resources ("GR 1/2019"). This regulation requires foreign exchange proceeds deriving from the export of natural resources, including oil and gas, to be placed in the Indonesian financial system through a special account in an Indonesian foreign exchange bank, which must be licensed by the Financial Services Authority (Otoritas Jasa Keuangan or "OJK"). The Indonesian branch offices of overseas banks do not qualify as Indonesian foreign exchange banks.
The placement of the export proceeds in a special account must be carried out no later than the end of the third month after the Registration of Export Declaration (Pemberitahuan Ekspor Barang). The funds in the special account can only be utilised by the PSC Contractor for certain payments, such as customs, loans, imports, profits/dividends, and other purposes permitted by the Indonesian Investment Law (Law No. 25 of 2007 regarding Capital Investment). Such special accounts are eligible for a tax incentive in the form of the reduction of deposits tax (ranging from 0-10%), as opposed to the normal deposit tax of 20%.
To implement GR 1/2019, BI issued BI Regulation No. 21/3/PBI/2019 regarding Foreign Exchange Receipts from Exports from the Exploration, Management, and/or Processing of Natural Resources, as amended by BI Regulation No. 21/14/PBI/2019
This is an excerpt from The International Comparative Legal Guide to: Oil & Gas Regulation 2021. You can find the full chapter here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
