Executive Summary: Indonesia's New Mining Regime - Affiliated Mining Services Provider Regulation

INTRODUCTORY NOTES

This Summary & Analysis is intended as an overview only of the Directorate General of Minerals, Coal & Geothermal (?DGoMCG?) Regulation re the Procedures and Requirements for Obtaining Approval for the Participation of Subsidiaries and Affiliated Companies as Mining Services Providers, dated 10 May 2010, and issued pursuant to Article 9 of the Minister of Energy & Mineral Resources Regulation re Mining Services for Minerals and Coal (?Affiliated Mining Services Provider Regulation?).

This Summary & Analysis reflects our current understanding only of the Affiliated Mining Services Provider Regulation and is subject to change as that understanding develops and evolves.

This Summary & Analysis should be read in conjunction with our earlier (i) Summary and Analysis, dated 9 January 2009, of the New Mining Law, (ii) Summary and Analysis, dated 30 November 2009, of the Implementing Regulation on Mining Services, (iii) Summary and Analysis, dated 25 January 2010, of the Regulation on Prioritization of Coal and Mineral Supply for Domestic Interest, (iv) Summary and Analysis, dated 19 February 2010, of the Implementing Regulation on Coal Mining Enterprise Activities, (v) Summary and Analysis, dated 13 September 2010, of the Implementing Regulation on Mining Direction & Supervision, (vi) Summary and Analysis, dated 5 October 2010, of the Implementing Regulation on Benchmark Price Determination, (vii) Summary and Analysis, dated 14 January 2011, of the Implementing Regulation on Reclamation & Post Mining Activities and (vii) Summary and Analysis, dated 18 April 2011, of the Implementing Regulation on Coal Benchmark Price Formulae. Copies of these earlier Summaries & Analyses are available upon request.

The use of implementing regulations and decrees to augment a law is a very common practice in Indonesia. Laws are passed by the Indonesian Parliament with the intention they will set out the broad parameters only of a new regulatory regime while the details of the new regulatory regime will be provided in one or more implementing regulations and other instruments issued by the Ministry or officials of the Ministry with primary responsibility for overseeing the application of the new regulatory regime. The use of the Affiliated Mining Services Provider Regulation to expand on Article 9 of the Mining Services Regulation is, therefore, entirely consistent with long established Indonesian legislative practice and procedure.

Many of the points made in this Summary & Analysis are necessarily speculative in nature and subject to further clarification and confirmation. Accordingly, it would be prudent not to rely solely on this Summary & Analysis but, rather, to seek specific legal advice with respect to any issue concerning the Participation of Affiliated Mining Services Provider Regulation before making a material business decision regarding the same. CHRISTIAN TEO PURWONO & Partners would be pleased to assist you in this regard. Our contact details are set out below.

Address : CHRISTIAN TEO PURWONO & Partners
The Indonesia Stock Exchange Building
Tower II Floor 16 Suite 1604
Sudirman Central Business District
Jakarta 12190
INDONESIA
Telephone : [62-21] 515 0280
Facsimile : [62-21] 515 0281

Please contact, in the first instance, Mr. Bill Sullivan, Licensed Foreign Advocate (email: bsullivan@cteolaw.com and mobile:[62-21] 81585060978) or Ms. Nurvita Kristianty Siregar, Senior Associate (email: nksiregar@cteolaw.com and mobile [62-21] 818482777).

EXECUTIVE SUMMARY

1. An ?Affiliated Mining Services Provider? is a business entity having any of the following relationships with an IUP/IUPK holder as follows:
(a) the IUP/IUPK holder has not less than 20% direct share ownership in the Affiliated Mining Services Provider;
(b) the IUP/IUPK holder has some direct share ownership in the Affiliated Mining Services Provider and has not less than 50% of the voting rights in respect of the Affiliated Mining Services Provider pursuant to an agreement allowing the IUP/IUPK holder to indirectly control the financial and operational policies of the Affiliated Mining Services Providers; or
(c) the IUP/IUPK holder is authorized to appoint or dismiss the Finance Director, the Operational Director or other similar executives of the Affiliated Mining Services Provider.

2. An IUP/IUPK holder may only appoint an Affiliated Mining Services Provider in certain circumstances where:
(a) there is no ?similar? [unaffiliated] Mining Services Provider in the subject Regency/City and/or Province; or
(b) there is no unaffiliated Mining Services Provider capable of providing the services required by the IUP/IUPK holder based on the following criteria:
(i) the unaffiliated Mining Services Providers do not have sufficient investment;
(ii) the unaffiliated Mining Services Providers do not have sufficient working capital; and/or
(iii) the unaffiliated Mining Services Providers do not have sufficient manpower with the necessary competency in the field of mining; as required by the IUP/IUPK holder.

3. The direct appointment of an Affiliated Mining Services Provider may only be carried out once the IUP/IUPK holder (i) has fulfilled an Announcement Requirement and (ii) has obtained DGoMC Approval.

4. DGoMC will issue the DGoMC Approval or rejection letter within 5 working days from the date of submission of an application by the IUP/IUPK holder together with the required supporting documents.

5. The Affiliated Mining Services Provider is required to fulfill the terms and requirements set forth by the IUP/IUPK holder with regard to (i) equipment, (ii) manpower and (iii) capitalization needed to carry out the relevant mining services business activities.

6. In the event that the IUP/IUPK holder does not comply with the procedures set out in the Affiliated Mining Services Provider Regulation, the relevant agreement between the IUP/IUPK holder and the Affiliated Mining Services Provider shall be deemed null and void.

7. It should be carefully noted that the exception which allows an IUP/IUPK holder to appoint an Affiliated Mining Services Provider, where there is no ?similar? unaffiliated Mining Services Provider in the relevant geographical location, is extremely vague and seems to, effectively, give IUP/IUPK holders a great deal of latitude to appoint Affiliated Mining Services Providers where the IUP/IUPK holder decides, for whatever reasons and on whatever grounds, there is no ?similar? unaffiliated Mining Services Provider. This is to be compared with the other exception which only applies in those cases where the unaffiliated Mining Services Providers have insufficient investment, working capital or technically competent manpower? altogether more difficult criteria to meet. (ends)

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