Indonesia's revenue sharing now counts the districts that process minerals, and the task ahead is measuring them precisely

Indonesia spent most of the past two decades sharing mining revenue against a map of pits. Money returned to the district where ore left the ground. Law 1 of 2022 on fiscal relations between central and regional government changed that geometry by writing a second kind of place into the formula: the district that processes the mineral. That district now has a defined claim, and in 2026 the claim has names attached to it.

Decree 157.K/KU.01/MEM.S/2026, signed on 22 April, sets the register of producing and processing regions that the Ministry of Finance uses to allocate mineral and coal revenue sharing for the year. On 7 August the Commission III secretariat of the Central Sulawesi regional legislature asked the central government to pay those transfers in full and on schedule, and to review how the processing category was assigned. The Minister of Energy and Mineral Resources, Bahlil Lahadalia, has said the basis of the designation will be checked. Both moves point at the same underlying question, and it is a measurement question rather than a political one.

A fiscal address for processing

The arithmetic is set out in the law. Of the production levy collected on minerals and coal, 80 percent returns to regional government. The province receives 16 percent. The producing district or city receives 32 percent. Districts and cities that share a border with the producing area receive 12 percent, and other districts and cities in the same province receive a further 12 percent. The processing district or city receives 8 percent. Where no processing district is designated for a commodity, that 8 percent is distributed among the other regions in the province and the immediate neighbours of the producing area.

Eight percent reads as a small slice until it is applied to the national total. The 2026 state budget targets Rp113.39 trillion in non tax state revenue from the minerals and coal sector, an increase of 7.3 percent on the 2025 outlook. The processing share is therefore the difference between a district treating a smelter as an industrial neighbour and a district treating it as a fiscal asset.

What the 2026 register contains

The decree divides producing regions by the levy that generates the entitlement. For the fixed fee, or land rent, it lists 3 provinces, 315 regencies and 20 cities. For the production levy, the narrower and more valuable category, it lists 1 province, 99 regencies and 6 cities. On royalty receipts East Kalimantan leads at Rp1.03 trillion, followed by South Kalimantan at Rp576.8 billion and Central Kalimantan at Rp345.6 billion.

The processing annex is short by design. Eight regencies are named, covering four nickel operations producing ferronickel and nickel matte, two tin refineries and two copper cathode facilities. The operators behind them include PT Weda Bay Nickel, PT Aneka Tambang, PT Vale Indonesia, PT Timah Tbk, PT Amman Mineral Nusa Tenggara and PT Freeport Indonesia. Morowali and North Morowali, the districts that host the largest concentration of nickel processing capacity in the country, do not appear on that list, which is what prompted the request for review.

Recognition changes the size of the transfer

The clearest evidence that the processing category is doing real work comes from comparing two nickel districts. Central Halmahera, home to designated processing capacity, generated an estimated Rp12.5 trillion in state revenue in 2024 and received Rp1.1 trillion back through revenue sharing. Central Sulawesi, across all of its districts, received in the order of Rp200 billion in 2025 by the accounting used by the energy transition organisation Cerah, with the Regional Representative Council citing a comparable annual range and an outstanding balance of around Rp900 billion.

The scale of activity in Central Sulawesi is not in dispute. Morowali contributes 44 percent of a provincial gross regional product of Rp347.14 trillion, and nickel processing accounts for roughly 65 percent of Morowali's own output. Estimates of the province's annual contribution to national revenue circulate between Rp200 trillion and Rp570 trillion depending on whether export value, corporate tax or levy collection is used as the base, and that spread is itself informative. A fiscal formula cannot arbitrate between figures that were built on different definitions.

The main problem lies in the gap between industrial reality and fiscal recognition.

That assessment, from Muhammad Safri, secretary of Commission III in the Central Sulawesi legislature, describes a data problem with a fiscal consequence. Cerah has put a constructive version of the same point to the Ministry of Finance and the Ministry of Energy and Mineral Resources: the current base is calculated from land rent on the area extracted and from the sale value of ore produced, which means the value created when that ore becomes ferronickel, nickel pig iron or mixed hydroxide precipitate sits outside the calculation entirely.

The measurement base a review would need

A review of the processing register is straightforward to specify and entirely achievable with data the government already holds or can commission. Four layers do most of the work.

The first is verified output. Smelter production, feed sourcing and product grade are already reported through work plan and budget approvals, customs declarations and surveyor reports. Reconciling those three streams for each facility establishes which district physically converts ore into a higher value product and in what quantity.

The second is spatial evidence. Satellite and drone imagery, tied to permit boundaries, shows plant footprints, tailings and residue areas, port and haul infrastructure, and the land cover that industrial expansion has replaced. In Morowali the shift is quantified: irrigated rice land fell from 9,068 hectares in 2019 to 7,426 hectares in 2024. That is a measurable transfer of productive land from one use to another, and it belongs in the ledger.

The third is environmental economics. Indonesia already has a regulatory methodology for pricing ecological condition in Regulation of the Minister of Environment No. 7 of 2014, which sets out how ecological damage, environmental economic loss and recovery cost are calculated. Applied prospectively rather than after an incident, the same framework values water quality, soil productivity, carbon stock and coastal fisheries as an ongoing account rather than a one off claim.

The fourth is social infrastructure load. Analysis by the INDEF Green Transition Initiative found income gains of around 10 percent for workers near smelter operations alongside an expansion in social protection access of roughly 2.4 percent, a pattern indicating that benefits concentrate inside the industrial estate while service demand spreads across the surrounding district. Health and education loads are quantifiable and can be costed.

Sirkularium's view

The design decision in Law 1 of 2022 is sound. Recognising processing as a place where value is created, and giving that place a defined share, aligns the fiscal map with the industrial map that downstream policy has been building since 2020. What the current review shows is that the framework has outrun the evidence base that populates it. A register can only be as accurate as the production, spatial and environmental data it is compiled from.

For government, the practical opportunity is to attach a standing measurement protocol to the annual designation, so that the list is refreshed from reconciled output data and current imagery rather than from the previous year's list. Publishing the criteria alongside the decree would allow provinces to check their own status before the fiscal year begins, which converts an annual dispute into an annual verification.

For operators, the same logic applies with more direct commercial force. A company that can demonstrate, with independently verified figures, what it processes, where the material comes from, what land condition its footprint has replaced and what it is restoring, holds a defensible position in front of the Ministry of Environment and Forestry and a credible one in front of the district that hosts it.

Economic valuation is most useful when it is maintained as a permanent account, not assembled once a dispute has already started.

Sirkularium's recommendation to mining clients is to build that account now, combining geospatial monitoring with ground verification under the standard national methodology, and to update it on the same annual cycle the revenue sharing register runs on. What to watch next is whether the ministry publishes revised designation criteria before the 2027 allocation, and whether the proposal to widen the revenue base to processed value moves from discussion into a draft regulation.