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Legal Updates

Implementation of Mining Law

Law No. 4 of 2009 on Mineral and Coal Mining (the "Minerba") was enacted in January 2009. The Minerba requires that implementing regulations be introduced prior to the first anniversary of its enactment in January 2010. This target was not been met, however the Government released two key regulations on 12 February 2010 (but effective from 1 February 2010): Government Regulation No. 22/2010 regarding Mining Areas, and Government Regulation No. 23/2010 regarding Conduct of Coal and Mineral Mining Business Activities (respectively "GR No. 22" and "GR No. 23").

GR No. 23 provides some important clarification surrounding the procedure to obtain new licences. While further guidance is required, it is hoped that a properly structured system for the grant of new mineral licenses is a key objective of the current push to enact implementing regulations for the Minerba. Frustration among Regents (the heads of local governments and the principal grantors of mining licenses) over the delay in establishing new licensing procedures has already led to some discord between them and the Ministry of Energy and Mineral Resources (the "Ministry"). Better coordination and interaction between the Regents and the central Government (which was almost non-existent under the previous law) has the potential to be one of the key advancements of the Minerba.

GR No. 23 provides a framework for a tender process applicable to entities wishing to obtain a mining business licence area (referred to as a "WIUP"). GR No. 23 does not provide all of the specific details for a tender process and stipulates that further details will be provided in Ministerial regulations. Once an entity wins the tender for a WIUP, it must then, within a short timeframe, apply separately for an IUP Exploration licence within that area. Failure to do so will result in a forfeiture of the WIUP and bid bond required for any tender bid. Further, and as expected, GR No. 23 makes it clear that foreign investors must use locally incorporated bid vehicles.

One major drawback in the process may be whether, and if so how, it can be used for larger scale mining projects. Whilst there does not appear to be an express restriction on the number of IUP licences which may be granted within one WIUP, the restrictions on acreage within the Minerba itself are linked to the WIUP and not the IUP licences granted. For example, for coal mining projects the maximum WIUP area size for exploration is 50,000 hectares, and for production operation, 15,000 hectares. Further, for metals projects the maximum WIUP area size for exploration is 100,000 hectares, and for production operations, 25,000 hectares. In essence it will not matter how many IUP licences the entity holding the WIUP is granted as the same entity may only hold licences covering up to the maximum allowed WIUP acreage and may only hold one WIUP area. It appears only publicly listed companies may obtain multiple WIUPs and it is not clear whether there will be any procedure to enable multiple WIUPs to be linked when awarding projects.

There is a general right for holders of a WIUP to apply for an area outside their WIUP to support their mining business activities, however, there is no detail around what this extra area may be used for, how large it can be, what the application process entails, what the relevant government body's approval procedure is for the application and so on. It is unlikely that this right may be used to obtain further exploration/mining acreage without tender.

GR No. 23 also requires IUP licence holders to reduce the maximum WIUP area to:


  • for metals: 50,000 hectares (in the fourth year of the exploration phase) and 25,000 hectares (at the end of the exploration period or in the eighth year of the exploration phase); and

  • for coal: 25,000 hectares (at the fourth year of exploration phase) and 15,000 hectares (at the seventh year of the exploration phase) although this is not necessary in the production operation phase.



There are number of key areas in which GR No. 22 and GR No. 23 are still lacking useful specific detail. Of particular note is the continuing lack of clarity on detail regarding the new minimum pricing system for sales of coal and other minerals and how it will be applied in practice. Broader pricing and contracting controls was an area mapped out in the previous draft of GR No. 23. There was, however, little express basis for this in the Minerba. While not detailed in GR No. 23, it is unclear whether it may be in subsequent regulations. The regime proposed in the earlier draft looked potentially cumbersome and complex to meet and restrictive on commercial conduct. More recent comments from Ministry officials suggested that price controls on sales pricing may only relate to the price upon which tax and royalty revenue is to be calculated, and not putting commercial deals in a straightjacket of approvals and reporting. This would be good news but will need to wait for Ministry regulations to see if this is borne out.

Nevertheless, the focus on the new licensing system does indicate to get the Minerba IUP system into operation this year. Although the one year deadline for new regulations was not met, the change in the system is quite a far-reaching one and those with previous experience of Indonesia (e.g. comparison to the shift to the new Oil and Gas Law) will appreciate that the timeframe for these regulations remains a positive one.





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