By : Mutiara Rengganis, Evan J. Cane, Hafil N. Rahman
Government of Republic Indonesia has recently enacted Law No. 3 of 2020 (“Law No. 3/2020”) concerning the Amendment of Law No. 4 of 2009 concerning Mineral and Coal Mining (“Law No. 4/2009”) and comes into effect at the same date of the enactment, which is 10 June 2020.
Law No. 3/2020 has made some material changes to provisions under the previous Law No. 4/2009 which may affect investment in mineral and coal mining sector. The following are some key changes in Law No. 3/2020 which should be taken into account when investing in mineral and coal mining sector:
Law No. 3/2020 introduces new licensing system to carry out mining business in Indonesia (“Business Licensing”). Any party who intends to operate mining business in Indonesia shall obtain Business Licensing, which consists of:
The ‘licenses’ are the relevant mining business related licenses, which consist of:
Law No. 3/2020 no longer recognizes Exploration IUP and Production Operation IUP, and instead introduces ‘new’ IUP. Such IUP will cover two phases of activity, i.e. exploration and production operation. IUP holders are no longer required to ‘upgrade’ its license to allow them conducting production operation. Only by fulfilling certain requirements, IUP holders can then proceed with production operation activity after completing exploration. Moreover, Law No. 3/2020 now guarantees 1 (one) time extension for IUP holder who carries out exploration activity and 2 (two) times extension for IUP holder who carries out production operation activity, subject to fulfilment of requirements as set out in the relevant regulations.
For existing Mining Business Licenses issued before the enactment of Law No. 3/2020 shall remain valid and the holders of such licenses are required to adjust and comply with the licensing provisions under the new Law No. 3/2020 within 2 (two) years period after its enactment.
II. Licensing Authority
Under Law No. 4/2009, Mining Business License is issued by the relevant authority where the mining area is located i.e. (i) by Minister of Energy and Mineral Resources (“MEMR”) for mining area which is located across provinces; (ii) by the governor for mining area which is located across cities/regencies; and (iii) by the mayor or regent for mining area which is located within a city or regency. This has now changed and Law No. 3/2020 grants the full authority to the Central Government of Republic of Indonesia, which is represented by MEMR, to issue any Mining Business Licenses.
III. Transfer of IUP and IUPK
UP and IUPK holders may now transfer its license to a third party with prior approval from the MEMR. Such approval to transfer the license shall be granted only if the exploration activity has been completed and the relevant IUP or IUPK holders fulfils certain administrative, technical, and financial requirements. Although transferable, Law No. 3/2020 still prohibits IUP and IUPK holder to encumber the IUP or IUPK, as well as the mining commodity to any third parties. Further provisions on procedure for transfer of IUP and IUPK will be regulated under the implementing regulations.
IV. Divestment Obligations
IUP and IUPK holders fully or partially owned by foreign parties are obliged to divest their shares in the amount of 51% to Indonesian participants. Such divestment obligation occurs at the time the production operation phase is reached, in contrast with the previous provisions where the obligation occurs 5 (five) years after production.
The divestment shall be carried out gradually with certain priorities given to the Central Government, regional government, state-owned enterprises, regional-owned enterprises, and/or Indonesian private enterprises, or through public listing in Indonesia. Detailed provisions on procedure for the implementation and period of shares divestment will be further regulated in the implementing regulation of Law No. 3/2020.
V. CoW and CCoW
Status Law No. 3/2020 guarantees the extension of any Contract of Work (Kontrak Karya – “CoW”) and Coal Contract of Work (Perjanjian Karya Pengusahaan Pertambangan Batubara – “CCoW”). Such extension shall be given in the form of IUPK for the Continuation of Contract and subject to the following two conditions: (i) CoW or CCoW that has not been extended will get 2 (two) times extension; while for (ii) CoW or CCoW which has been extended one time will get the second extension. Each IUPK for the Continuation of Contract/ has a maximum period of 10 (ten) years.