New mining services decree puts local value retention on the ledger

Indonesia's Ministry of Energy and Mineral Resources (ESDM) has reset the rules on who does the physical work of mining. Ministerial Decree (Kepmen ESDM) No. 365.K/MB.01/MEM.B/2026, signed by Minister Bahlil Lahadalia on 18 September 2026 and reported widely on 28 and 29 September, sets technical guidelines for approving the use of subsidiaries and affiliates in mineral and coal mining services. It also establishes a clear preference for service companies based in the regencies and cities that surround each mining concession.

The change is procedural in form but economic in substance. Mining services such as overburden removal, hauling, drilling and site preparation account for a large share of what a concession spends. Where that spending lands, and whether it can be observed, shapes how much of the value of a mine stays in the region that hosts it. The decree gives regional governments, the ministry, and the companies themselves a clearer basis for answering that question.

What the decree sets out

The first provision requires holders of a mining business licence (IUP) or a special mining business licence (IUPK) to use companies that hold a mining services business licence (IUJP), giving priority to service companies located in the regency or city around the licence area. The second provision states that IUP and IUPK holders may not involve subsidiaries or affiliates in mineral and coal mining services without the Minister's approval.

The decree defines the relationships it covers. According to CNBC Indonesia and Fortune Indonesia, the restriction applies to direct shareholding by the licence holder in the service company and to cases where the two share the same beneficial owner. Tambang.co.id reports that the scope extends to contract of work (KK) and coal mining work agreement (PKP2B) holders as well.

Exceptions are available with approval. Affiliates may be used for state assignments, including National Strategic Projects (PSN), the development of processing and refining facilities, coal development and utilisation, and supplying domestic mineral and coal needs. The Minister must decide within a maximum of 14 working days after a complete application is received. Approval runs for the same period as the affiliate's mining services licence. For licences issued under provincial authority, the governor handles approval. The decree revokes the Director General's regulation No. 376.K/30/DJB/2010, which had governed this area for sixteen years.

Director General of Minerals and Coal Tri Winarno explained the balance the ministry is aiming for in remarks reported by ANTARA and KabarBursa.

The decree does allow affiliates, but under several criteria, among them domestic supply needs, National Strategic Projects, and downstreaming. Tri Winarno, Director General of Minerals and Coal, ESDM

The scale of the services economy

The decree lands on a large and growing base. Data from the Directorate of Mineral and Coal Engineering and Environment, cited by KabarBursa, show IUJP holders rising from 3,099 companies in 2023 to 3,994 companies as of May 2025, an addition of 895 operators in roughly two years. That growth suggests a deep pool of licensed service providers, many of them regional, that the new preference can draw on.

The wider subsector gives context for why the flow of service spending matters. Minister Bahlil reported on 22 September that the mineral and coal subsector employed 685,724 workers in the first half of 2026, that investment in the subsector reached US$6.7 billion in 2025, and that mineral and coal non-tax state revenue (PNBP) reached Rp108.13 trillion through August 2026, against Rp135.16 trillion for the whole of 2025. The minister noted that PNBP has risen even as coal production has been lower than in 2025, a sign that the ministry is focusing on the value extracted per tonne rather than on volume alone.

Services contracting is a natural next step in that value-first approach. Royalties and PNBP capture the state's share at the point of sale. Service contracts determine how much of the operating spend circulates in the host region through local firms, local wages, and local suppliers.

A view from Morowali

Local business owners have welcomed the direction. Syahnil Umar, chief executive of PT Vendoura Inti Perkasa in Morowali, Central Sulawesi, told ANTARA that the rule strengthens local service companies. His firm states a monthly nickel production capacity of 300,000 metric tonnes. He described Morowali as more than a region endowed with natural resources and said space for local firms to move up a class should keep widening.

Umar also set out a standard for his own peers. Local companies, he said, should win work on productivity, safety, compliance, equipment readiness, financial capability, and workforce quality, not on location alone. That framing matters. A regional preference delivers the most value when it is paired with performance, so that local contractors grow into firms able to compete for larger and more technical contracts over time.

Why this is a valuation question

Sirkularium reads the decree as a step toward making the regional economic contribution of mining visible. When a concession holder contracts its own affiliate, the price of the service is set within one corporate group, and the resulting split of value between the licence holder, the contractor, and the host region is hard for outsiders to observe. When services are contracted at arm's length with firms registered in the surrounding regency, the same spending becomes a set of observable transactions: contract values, local payroll, local procurement, and local tax receipts.

That observability has practical uses. Regional governments that are preparing their own instruments to capture mining value, such as the draft regulation in South Sulawesi on the regional share of IUPK net profit, which allocates 6 percent of net profit to local governments, need reliable figures on how much a mine contributes to the local economy beyond royalty transfers. A local services ledger supplies part of that picture. It also gives the ministry a way to track whether the preference is working, for example by comparing the share of service spend going to regional firms before and after the decree.

There is an environmental dimension as well. Contractors carry out much of the land clearing, excavation, and hauling that drive a mine's physical footprint, while AMDAL commitments and reclamation obligations remain with the licence holder. As more work moves to a wider base of regional contractors, clear baselines matter. Land cover mapping from remote sensing, ground-verified data on soil and water condition, and a valuation of ecosystem services before operations begin allow licence holders to show that their environmental record holds across every contractor working on site.

Sirkularium's view

Kepmen 365 is a constructive policy. It widens the base of firms that share in mining activity, keeps room for affiliates where national priorities such as downstreaming and domestic supply call for them, and sets a firm 14 working day decision window that gives companies predictability. The ministry's broader emphasis on value per tonne, visible in PNBP growth despite lower coal output, gives the decree a coherent place in a larger reform.

For government and public institutions, three steps would help the decree deliver measurable results. First, a simple reporting template for local service spend per concession, covering contract value, local employment, and local procurement, would turn the preference into a trackable indicator. Second, regional governments can connect that data to their own revenue planning, including forthcoming profit share regulations, so that the full regional contribution of a mine is recognised in one place. Third, licence holders can pair the shift to regional contractors with independently verified economic valuation of their operations, combining GIS and remote sensing with ground data and the standard methodology in Permen LH No. 7 Tahun 2014, so that environmental performance is documented consistently as the contractor base grows.

Sirkularium recommends treating this valuation as ongoing practice rather than a response to disputes. A concession that can show, with data, both the local economic value it creates and the condition of the land and water it operates on is well placed to demonstrate compliance to the Ministry of Environment and to earn lasting trust from host regions. What to watch next: the first ministerial approvals under the decree, any reporting guidance from the Directorate General of Minerals and Coal, and how provinces with large IUPK operations align their own regulations with the new local services preference.