Postponement of LC requirement

To respond industries concerns, Minister of Trade has issued regulation No. 26/M-DAG/PER/3/2015 (“MoT 26”) dated 30 March 2015 regarding Special Provision on the Implementation of the Requirement to Use LC for Export of Certain Goods to be effective on 1 April 2015.

In the consideration part of MoT 26, it states that MoT 26 is intended to increase the effectiveness of MoT Reg. No 4/M-DAG/PER/2015 (“MoT 4”) regarding  Provision for Utilization of Letter of Credit (LC) for Export of Certain Goods. However, Minister of Trade said that MoT 26  is a transition regulation for MoT 4 to be fully applied for certain goods.

Key points of MoT 26 are :

• Postponement of utilization of LC for export of certain goods. The purpose of postponement is to give exporters time to revisit and revise sales contracts signed before MoT 4 enactment. Postponement by Minister of Trade can be  granted after receiving  postponement recommendation from Minister of Energy and Mineral Resources (MEMR).

• Indonesia Exim Bank may participate in LC payment process.   

Mechanism

In order to get the postponement recommendation from MEMR, PSC contractors shall submit request to MEMR  with the following attachment:

i) sales contract between exporter and foreign buyer signed before the stipulation of MoT 4 and which  states payment method other than LC

ii) readiness of exporter to apply L/C requirement in certain period.

iii) exporters to send statement letter with stamp covering the two points above.

Post audit will be conducted by MoT for those who request and grant postponement.  If there are misstatement or inappropriate export realization, penalty might be imposed by revoking the postponement or other penalties in accordance with laws and regulations. If it is the case, exporters should use LC as payment method to be able to continue exports.

In practice, request for exemption is submitted by each exporter on quarterly basis. MEMR will issue postponement recommendation after checking those documents   to ensure that contracts are for export and exporter is the party of contract. They also check the contracts to ensure that they are signed before MoT 4 and there is no LC requirement in the contract.  Some PSC contractors have submitted request for postponement  and MoT has granted postponement for the period requested.

Does MoT 26 meet exporter expectation ?

MoT 26 actually did not answered oil &gas industry concerns. It just provides postponement as temporary solution rather than exemption as permanent solution. MoT 26 disregards oil & gas business practice provided that :

-          gas sales has a long term contract,

-         - gas has limited and reputable buyers (some contracts was signed since 1970s),

-         - gas revenue was monitored by SKKMIGAS and audited by government auditor;

-         - export proceed has been recorded by Bank Indonesia.

Considering the characteristic of oil & gas business, PSC Contractors expect that MoT gives exemption from MOT 4. By having postponement, instead of encouraging exporters to increase exports as  Indonesia need right now, MoT 26 gives additional administrative burden to conduct an export  such as periodical postponement request, attachment of sales contracts, statement letters, etc.

When MoT grants  postponement for PSC Contractors, they require Contractors  to submit the report of export realization to Directorate General of Foreign Trade after the shipment  to maintain accuracy of the data from export proceeds. On the other hand,  Ministry Coordinator of Economic found that there was a mismatch of  trade statistic between Indonesia and country’s of buyers  for export of certain goods therefore they support the enactment of MoT 4.

It seems the government pay more attention to trade statistic rather than business continuity. If MoT 4 is fully applied and buyers refuse to issue LC, export will be impeded since no exit permit will be granted. Government will suffer loss of revenue from production sharing and possible significant charge of liabilities from buyers if the sales commitment can’t be fulfilled. 

So, does the benefit of accurate trade statistic match with the cost (loss of revenue and charges from buyers) ?