Danantara Indonesia will honour commodity export contracts, but will review prices

[JAKARTA] Indonesian sovereign wealth fund Danantara will honour existing export contracts but will review them to make sure prices are not below market levels, its chief executive said on Thursday (May 21) as the fund prepared to take control of the country’s top commodity shipments.

A unit of the fund will become the sole exporter of palm oil, coal and ferroalloys from as early as Sep 1, President Prabowo Subianto announced on Wednesday, as his government sought tighter control over tax revenues and foreign exchange earnings from commodities.

Danantara CEO Rosan Roeslani said that when the sovereign wealth fund has visibility on pricing, it may renegotiate prices that were set below global benchmarks.

“We will respect all existing contracts. But what we see is that even though they are long-term contracts, the pricing is not determined at that time, but when the contract is running. Later, if we see a contract below prices at world market index, of course we will review it,” Rosan told reporters.

“If we see an indication of under-invoicing, of course we will re-evaluate such a contract,” he said. There is a three-month transition period from Jun 1, which could be extended to six months, during which exporters must report the volume, value and price points of their goods to the unit, Danantara Sumber Daya Indonesia.

Indonesia is the world’s biggest exporter of palm oil, thermal coal and nickel, and last year its exports of the three commodities amounted to US$65 billion.

Prabowo’s plan aims to tackle concerns about under-invoicing and how exporters account for transfer pricing, but it has unsettled financial markets this week.

On Thursday, Jakarta’s main stock index fell to its lowest level in more than a year, while the rupiah currency slid 0.4 per cent to trade near a record low set on Wednesday.

Authorities are due to brief companies and business groups about the new export mechanism later on Thursday and implementing regulations would soon be issued by the trade ministry, Trade Minister Budi Santoso said.

SEE ALSO

Malaysian palm oil groups worried Indonesian export revamp could cause short-term disruption

Prabowo’s biggest crackdown on tycoons shocked his own officials

Indonesia’s tighter commodity export control raises concerns over margin pressure for producers

Indonesia plans to tighten state control over commodity exports

Indonesia’s Q1 growth hits 3-year high, but momentum seen peaking

More

Eddy Martono, chairman of palm oil companies’ association GAPKI, said his industry has a lot of questions, such as what happens when a buyer requests certain specifications for a shipment.

“Exporters usually already have their own markets. We must ensure that we do not lose these markets due to poor management,” he said.

The Indonesian Coal Mining Association was concerned about long-term contracts, specifications of coal quality, financing and other obligations, the group’s executive director Gita Mahyarani said.

The Indonesian Nickel Industry Forum (FINI) said it was awaiting the regulation documents and further explanation before making its impact assessment. REUTERS