Indonesia: Mining Licences In Indonesia

Last Updated: 28 August 2018
Article by Joo Thye Tan and Jonathan Guwe

Introduction

Home to the Grasburg mine, the largest gold mine and second largest copper mine in the world, and blessed with an abundance of substantial deposits, Indonesia's mining industry is a significant contributor to the largest economy in Southeast Asia, and is instrumental to Indonesia's strong economic growth in the past years.

To keep up with increasing investments in the mining sector, the licencing regime for the mining sector in Indonesia has also greatly evolved over the past years.

The Previous Regime – Contracts of Works & Coal Contracts of Work

Contracts of Work

Contracts of Work (COWs) were regulated under the Ministry of Energy and Mineral Resources Decision Letter No. 1614 of 2004 and largely regulated the mining industry excluding oil, natural gas, geothermal, radioactive and coal between the Indonesian Government and the relevant contract holders.

A COW is essentially a contract between the Indonesian Government and the contract holder setting out the company's rights and obligations in relation to all phases of a mining operation, including exploration, pre-production development, production and mine closure.

Under Indonesian law, a COW has the status of special law whereby the terms of the COW will override the applicable Indonesian laws like general tax law as the relevant subject matter will be specifically dealt with in the terms of the COW itself. For example, the taxation provisions of the COW will specifically provide for the tax regime applicable to the COW holder during the entire term of the COW, regardless of any changes to Indonesia's tax regulations.

A COW is valid for a period of 30 years as of the commencement of commercial production with extendable terms.

The terms of a COW would typically cover the following obligations:

  1. Expenditure obligations;
  2. Import and export facilities;
  3. Fiscal obligations;
  4. Reporting requirements;
  5. Submission of records, inspection and work programs;
  6. Preference to Indonesian suppliers;
  7. Environmental management and protection;
  8. Provision of infrastructure for the use by local population; and
  9. Payment of tax, royalty, dead rent etc.

Coal Contracts of Work

The legal framework for coal mining under a CCOW is similar to the general mining framework under COWs (eg. foreign ownership restrictions).

A CCOW holder is not permitted to engage in any other business activities other than coal mining i.e. the PMA Company which enters into the CCOW must be specially established and engaged in coal mining.

The New Regime post-2009 and the 2018 Update

Under the Law of Mining and Coal Mining No. 4 of 2009, mining licences were separated into mining business licence (Izin Usaha Pertambangan or IUP) and special mining business licence (Izin Usaha Pertambangan Khusus or IUPK) and small scale mining permits (Izin Pertambangan Rakyat or IPR). Further implementing regulations were then implemented to provide further guidance on the mining licences framework.

In February 2018, all the implementing regulations were revoked and replaced by Minister of Energy and Mineral Resources Regulation No. 11of 2018 and which was then amended by Minister of Energy and Mineral Resources Regulation No. 22 of 2018 (together, MEMR Reg 11&22/2018). Under MEMR Reg 11&22/2018, the business licences were provided for as follows:

  1. Exploration IUPs/IUPKs are granted for performance of general surveys, exploration and feasibility studies within a Mining Business Licence Area (WIUP) and Special Mining Business Licence Area (WIUPK) respectively.
  2. To sell coal and/or minerals extracted during the exploration phase, the holder of Exploration IUP/IUPK must obtain a Temporary Licence for Transport and Sales from the MEMR, Governor, or regent/Mayor.
  3. IUP-OPs/IUPK-OPs are granted for performing production operation activities such as construction, mining, processing and or refining, etc, within the WIUP and WIUPK respectively.
  4. IUP-OPs Specifically for Processing and/or Refining are granted specifically for purchasing, transporting, processing, and refining, as well as selling the mineral and coal commodities.
  5. IUP-OPs Specifically for Transportation and Sales are granted specifically for purchasing, transport, and selling the mineral and coal commodities.
  6. Business entities that are not engaged in the mining business but wish to sell their minerals or coals as a side impact of their mining activities are still required by MEMR Reg 11&22/2018 to obtain an IUP-OP for Sales. Examples of these business entities include those that run their businesses in the fields of construction of traffic facilities and infrastructures, port constructions, tunnel constructions, civil constructions, and/or dredging of river, lake, and/or sea.
  7. Mining Service Business Licence (IUJPs) are granted specifically for performing core mining service business activities in relation to certain phases/parts of the mining business activities, which include consultation, planning and implementation in a number of fields.

The 2018 Implementation Guidelines

The Minister of Energy and Mineral Resources (Minister) has, earlier this year, issued Decree No. 1796 K/30/MEM/2018 on Implementation Guidelines for the Application, Evaluation and Issuance of Licences for Mineral and Coal-Mining Activity (Decree 1796/2018) to implement MEMR Reg 11&22/2018. Decree 1796/2018 sets out the procedures for issuance of the various mining licences:

Decree 1796/2018 provides for the following guidelines in relation to application and evaluation of each mining licence:

Licence Application Evaluation

Exploration IUPs/IUPKs

Applications may be filed by business entities, cooperatives, individuals, firms or limited partnerships which have been awarded tenders (for Exploration IUP and Exploration IUPK), or a new joint venture established by state-owned/regionally owned enterprises (BUMN/BUMD) which have been given priority as regards WIUPKs business entites which have been awarded tenders in priority as regards WIUPKs (for Exploration IUPK).

Application to be submitted to Minister (both Exploration IUP and Exploration IUPK) or relevant governor (Exploration IUP only).

Administrative, technical, environmental and financial requirements will be evaluated within three business days.

If the requirements are met, the licence will be issued within seven business days thereafter.

IUP-OPs/IUPK-OPs

Applications may be filed by applicants awarded Exploration IUPs (for IUP-OP) or Exploration IUPK (for IUPK-OP).

Applications to be submitted to Minister (both IUP-OP and IUPK-OP) or relevant governor (IUP-OP only)

Administrative, technical, environmental and financial requirements will be evaluated within six business days (for IUP-OP) or three business days (for IUPK-OP).

If the requirements are met, the licence will be issued within seven business days thereafter.

IUP-OPs Specifically for Processing and/or Refining

Applicants (i.e., business entities, cooperatives etc.) which have obtained in-principle approval for capital investments are required to submit their applications to the Minister or relevant governor.

Administrative, technical, environmental and financial requirements will be evaluated within five business days.

If the requirements are met, the licence will be issued within eight business days thereafter.

IUP-OPs Specifically for Transportation and Sales

Applicants (i.e., business entities, cooperatives etc.) are required to submit their applications to the Minister or relevant governor.

Administrative, technical, environmental and financial requirements will be evaluated within five business days .

If the requirements are met, the licence will be issued within eight business days thereafter.

IUJPs

Applicants (i.e., business entities, cooperatives etc.) are required to submit their applications to the Minister or relevant governor.

Administrative, technical, environmental and financial requirements will be evaluated within six business days.

If the requirements are met, the licence will be issued within seven business days thereafter.

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