Indonesia is on course to allow mining firms to apply earlier for license extension in a move that is expected to provide more certainty for businesses, as the government seeks to deregulate a number of policies to spur economic growth.
Energy and Mineral Resources Minister Sudirman Said revealed on Thursday that hard-mineral miners could submit license extension proposals 10 years prior to their expiry, from a previously limit of two years before expiry. Non-metal mineral mining firms can apply for license extension five years prior to expiry.
The regulation, a revision of government regulation No. 77 issued in 2014, is part of President Joko "Jokowi" Widodo's first batch of economic policy packages to address the country's ongoing economic weakness.
"This is part of [the government's efforts] in bringing legal certainty" for companies operating in the country, Sudirman told reporters, saying that the existing regulation allowing license extension only two years before expiry "doesn't make sense."
There are a number of contracts that will expire in the next 10 years, and thus they will have the opportunity to submit requests for license extension as soon as possible, according to Sudirman, citing Newmont Nusa Tenggara, Freeport Indonesia, Vale Indonesia and Karimun Granit.
Because of their high risks and large investments, early license extension could provide certainty for the businesses to lay out financial plans for their operations to extend their presence here, he added.
The current two-year period for license extension has been seen as too short for firms planning massive investment, with the long time to see returns on investments.
A mining company will be allowed to request for a 10-year extension period for its operation in Indonesia. The extension period can be proposed twice, so that the firm could get a maximum extended operation timeline of 20 years.
One of the most high-profile cases is that of mining contract extension of copper giant PT Freeport Indonesia, the Indonesian unit of US-based Freeport McMoRan Inc, which has expressed uncertainty about the continuation of its operations, as its contract will expire in 2021.
Based on existing regulations, the company can only apply for a license extension in 2019, but it needs certainty in advance to decide whether or not to develop underground mining in its operation area in Grasberg, Papua, and a new copper smelter in Gresik, East Java, to support its existing facilities.
The uncertainty of Freeport's operation beyond 2021 has contributed to the sluggish progress of the company's smelter development, which is required by the government's latest policy banning exports of unrefined minerals.
Energy and Mineral Resources Ministry's secretary general, Teguh Pamudji, said the revised rule will enable Freeport to secure legal ground to extend its operations in Indonesia. However, instead of holding a contract of work, the firm will be given a mining license, locally known as IUP.
"The current law [2009 Mining Law] states that we have to honor the existing contract until its expiry. Therefore, the extension [for Freeport] will be calculated starting from 2021," he said.
The 2009 Mining Law, passed during the era of former president Susilo Bambang Yudhoyono, regulates several points that led to massive adjustments in the handling of mining sector contracts in the country. One of the adjustments is that the country will no longer use the contract of work and will only give licenses for companies operating in the country.
