12 June 2020
Indonesia

In the midst of the COVID-19 pandemic, the Indonesian House of Representative (“DPR”) announced on 13 May 2020 that the draft Bill of new Mining Law (“draft Bill”) which will replace its 2009 predecessor, is complete.  To most people, this announcement was surprising and unexpected.

Historically, the discussion on the revisions to the 2009 Mining Law has been in the works for the past couple of years.  The draft Bill was planned to be issued last year at the end of the previous DPR term but it was protested by various organisations and communities.

This law seeks to develop the downstream mining industry, grow the economy and create new jobs, however, there have been claims that it is deemed to be sidelining the environment, local communities and regional administrations.

As at the first week of June 2020, the final draft of the Bill has yet to be enacted/promulgated by the Government. As such, the content of this Client Alert is mostly derived from news articles and credible publications.  Accordingly, our views and insights may change once we have the formal and promulgated Mining Law. The following are some of the key highlights of the draft Bill:

Centralisation of mineral and coal control authority

The authority to issue mining permits is moved to central government (through the Ministry of Energy and Mineral Resources) instead of through regional governments to streamline the process.  Certain functions will remain with the regional government, such as the authority to issue people’s mining permit (izin pertambangan rakyat).

Extension of operation permit

The draft Bill guarantees the continuation of Contract of Work or Coal Mining Concession Work Agreement (PKP2B) for the mining business players with larger concessions and longer contracts in the form of a special mining business permit (“IUPK”) as a Continuation of Operation by considering efforts to increase state revenue.

Under the previous Mining Law, a mining company must return the land to the State and followed by an auction mechanism to ensure certainty and fairness to business players upon the expiry of the contract term.

Downstream industries development

To develop downstream facilities, the draft Bill provides incentives for the holder of mining business permit (izin usaha pertambangan or “IUP”) or IUPK integrated with metal processing and/or refining facilities or coal development and/or utilisation activities, among others, a 30-year valid permit and is extendable for 10 years for each extension after fulfilling certain requirements. Non-integrated mining permits are capped at 20 years with two-time extensions. Further, the draft Bill allows mining businesses to continue exporting raw commodities for a period of 3 years provided that they are developing or have developed the refining facilities.

Divestment obligation

The draft Bill provides a provision where holders of Operation Production IUP or IUPK whose shares are owned by foreign shareholders are required to divest the shares of its foreign shareholders up to 51% in tranches to the central government, regional governments, state-owned enterprises (SOEs), regional-owned enterprises (BUMD), and/or national private companies.

At a certain period, the maximum foreign shareholding in the relevant IUP/IUPK shareholder must not exceed 49%. The timing as well as the procedures to implement this obligation will be regulated further in the new Mining Law’s implementing regulations.

Whilst the 2009 Mining Law already introduced the divestment concept, it did not specify the percentages or tranches for the divestment obligation. The percentages and tranches, however, were further regulated further in the implementing regulations of the 2009 Mining Law.

Post-mining reclamation obligation

The draft Bill requires the Operation Production IUP or IUPK holders to carry out reclamation and post mining activities at a rate of 100% prior to shrinking or returning the mining permit area (WIUP) or special mining permit area (WIUPK) to the Government. Former IUP or IUPK holders whose IUP or IUPK has expired are also subject to this obligation and secure post-mining guarantee fund.

While the industry praises this move as it provides legal certainty to mining companies; several transparency watchdogs and rights groups have publicly addressed their opposition to the draft Bill.  Several institutions are currently planning to submit a judicial review to the Constitutional Court upon the enactment of the draft Bill as it appears to be putting the environment, communities surrounding the mining areas, and regional autonomy at risk.

We are monitoring this closely and will provide detailed insights once the draft Bill is enacted.

If you have any questions or require any additional information, please contact Afriyan Rachmad or Anggi Yusari of Roosdiono & Partners (a member of ZICO Law).


This alert is for general information only and is not a substitute for legal advice.