KSP LEGAL UPDATES
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KSP LEGAL UPDATES
New Government Regulation on The Implementation of Mining and Mineral Business Activities
The fourth amendment on the implementation of mineral and coal mining business activities was promulgated by the Government of Indonesia (the “GOI”) on 11 January 2017 through the Government Regulation Number 1 of 2017 (the “GR 1/2017”).
Three main issues are amended in the GR 1/2017 as follow:
1. Time Limit to Apply for Extension of Mining Business License (“IUP”).
The GOI requires the application for the extension of the Operation Production IUP (“IUP OP”) to be submitted no earlier than 5 (five) years and at the latest 1 (one) year prior to the expiration of such IUP OP, while the Special Operation Production IUP (“IUPK OP”) application can be submitted no earlier than 2 (two) years and at the latest 6 (six) months prior to the expiration of such IUPK OP.
2. Share Divestment
Compared to the previous government regulation, the GR 1/2017 by the GOI made some significant changes on share divestment matter.
Firstly, all IUP and IUPK holders are obliged to divest their shares after five years of production, so that the Indonesian party, either the GOI, regional government, municipal or regency government, state-owned and regional-owned enterprises or local private business entities, holds at least 51% (fifty one percent) of the total shares.
The Indonesian party share participation shall be performed gradually as follows:
This provision eliminates the previous share divestment classification for IUP OP or IUPK OP with smelting and refinery operations (maximum of 60% (sixty percent) of the total shares on the fifteenth year of production) and underground mining and/or open pit mining activities (maximum of 70% (seventy percent) of the total shares on the tenth year of production).
In addition, ambiguity arises when the IUP OP holders for smelting and/or refinery is also obliged to divest their shares, while the GR 1/2017 provides the time limit of share divestment is starting after 5 (five) years of mining stage.
Meanwhile, the GR 1/2017 clarifies the timeframe of share divestment i.e. 90 (ninety) calendar days after 5 (five) years of ‘the issuance date of IUP OP or IUPK OP’, instead of ‘actual production’ as provided in the previous government regulation.
3. Contact of Work (“COW”) (Kontrak Karya)
Although the GR 1/2017 prohibits export of processed minerals, the Minister of Energy and Mineral Resources (“MEMR“) Regulation Number 6 of 2017 regarding the Procedure to Issue a Recommendation for the Export of Processed and Refined Minerals (“MEMR Reg 5/2017”) specifically allows this activity until 11 January 2022.
However, some requirements should firstly be fulfilled by the COW holder under the MEMR Reg 5/2017:
a. meeting the minimum quality of processing as determined in Attachment I of the MEMR Reg 5/2017;
b. converting COW to IUPK OP;
c. paying export duty; and
d. obtaining export recommendation letter from the MEMR and export approval letter from the Ministry of Trade.
The GR 1/2017 and the MEMR Reg 5/2017 lead to a mandatory for the COW holders to convert its license to IUPK OP and subject to the terms and conditions of IUPK OP regime. Once it is converted all provisions in the COW shall become null and void. Otherwise, the COW holders are still able to mine until expiration of the COW without being able to export the processed minerals.
Three main issues are amended in the GR 1/2017 as follow:
1. Time Limit to Apply for Extension of Mining Business License (“IUP”).
The GOI requires the application for the extension of the Operation Production IUP (“IUP OP”) to be submitted no earlier than 5 (five) years and at the latest 1 (one) year prior to the expiration of such IUP OP, while the Special Operation Production IUP (“IUPK OP”) application can be submitted no earlier than 2 (two) years and at the latest 6 (six) months prior to the expiration of such IUPK OP.
2. Share Divestment
Compared to the previous government regulation, the GR 1/2017 by the GOI made some significant changes on share divestment matter.
Firstly, all IUP and IUPK holders are obliged to divest their shares after five years of production, so that the Indonesian party, either the GOI, regional government, municipal or regency government, state-owned and regional-owned enterprises or local private business entities, holds at least 51% (fifty one percent) of the total shares.
The Indonesian party share participation shall be performed gradually as follows:
This provision eliminates the previous share divestment classification for IUP OP or IUPK OP with smelting and refinery operations (maximum of 60% (sixty percent) of the total shares on the fifteenth year of production) and underground mining and/or open pit mining activities (maximum of 70% (seventy percent) of the total shares on the tenth year of production).
In addition, ambiguity arises when the IUP OP holders for smelting and/or refinery is also obliged to divest their shares, while the GR 1/2017 provides the time limit of share divestment is starting after 5 (five) years of mining stage.
Meanwhile, the GR 1/2017 clarifies the timeframe of share divestment i.e. 90 (ninety) calendar days after 5 (five) years of ‘the issuance date of IUP OP or IUPK OP’, instead of ‘actual production’ as provided in the previous government regulation.
3. Contact of Work (“COW”) (Kontrak Karya)
Although the GR 1/2017 prohibits export of processed minerals, the Minister of Energy and Mineral Resources (“MEMR“) Regulation Number 6 of 2017 regarding the Procedure to Issue a Recommendation for the Export of Processed and Refined Minerals (“MEMR Reg 5/2017”) specifically allows this activity until 11 January 2022.
However, some requirements should firstly be fulfilled by the COW holder under the MEMR Reg 5/2017:
a. meeting the minimum quality of processing as determined in Attachment I of the MEMR Reg 5/2017;
b. converting COW to IUPK OP;
c. paying export duty; and
d. obtaining export recommendation letter from the MEMR and export approval letter from the Ministry of Trade.
The GR 1/2017 and the MEMR Reg 5/2017 lead to a mandatory for the COW holders to convert its license to IUPK OP and subject to the terms and conditions of IUPK OP regime. Once it is converted all provisions in the COW shall become null and void. Otherwise, the COW holders are still able to mine until expiration of the COW without being able to export the processed minerals.
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