Key points in new mining law
Tuesday, December 16 2008 - 10:10 AM WIB
The law among others obliges foreign mining contractors (IUPN and IUP holders) to divest a certain portion of their shares either to the central government, regional governments, central government-owned companies, regional government-owned companies or private national companies.
The amount of shares to be divested by the foreign miners will be specified in the governmental regulation implementing the law.
Under the previous contracts of works (CoW), foreign miners are obliged to divest up to 51 percent of their shares after ten years of production.
In terms of financial obligation, mining investors have to pay taxes and levies imposed by the central and local governments as well non-tax financial obligations, such as fixed fee, exploration fee, production fee and compensation for data provided by the government. Besides, they have to set aside 10 percent of their net profit since the beginning of production to the central government (4 percent) and the regional governments (6 percent)
The 6 percent net profit share payable to the regional governments will be shared by the provincial government (1 percent), the producing regency (2.5 percent) and other regencies/mayoralties within the province (2.5 percent).
The law categorizes mining permits into three: the Izin Usaha Pertambangan Negara or IUPN (State Mining Permit), Izin Usaha Pertambangan or IUP (Mining Permit) and Izin Pertambangan Rakyat or IPR (People?s Mining Permit).
In terms of basic characteristics, IUPN is to some extent similar to the existing Contract of Work (CoW), while the IUP is comparable to the existing Kontrak Pertambangan or KP (Mining Authorization). The IPR is the type of permit given to small-scale mining, which at present mostly operate without licenses and are thus labeled as ?illegal miners?.
Like the CoW, an IUPN is issued by the central government (the minister).
Under the CoW system, the minister awards a concession based on the requests from contractors and the contract should be approved by the House of Representatives. This makes a CoW have a high legal status. It is considered as a lex specialis, equal to a law. This type of contract gives certainty to investors.
Under the IUPN system, the central government along with the House decides the so-called State Mining Reserves Zones and some of the reserve zones can be awarded to contractors through a tender.
Like the KP, the IUP is awarded either by the minister, governor, mayor or regent. The IUP holders get concession in the so-called Mining Zone which is designated by either the central government along with the House, or the local governments. The IUP is awarded through a tender.
Foreign investors may apply for IUP or IUPN but the law says the government should prioritize the central government and regional government-owned companies and cooperatives.
Regent or mayor, after getting approval from the local councils, can award IPR to local people, including an individual (a maximum of one hectare), a group of people (a maximum of five hectares) and a cooperative (a maximum of 10 hectares). The IPR is valid for five years and extendable.
The law gives the IUP and IUPN holders a maximum of eight years to carry out explorations for metal minerals, between three and seven years for non-metal minerals and seven years for coal. The mining companies have rights to carry out production for 20 years for metal minerals with a possibility of extending the production permit twice, each for 10 years; 10 years for non-metal minerals with a possibility of extending the production permit twice, each for five years; 20 years for coal with a possibility of extending the production permit twice, each for 10 years.
The concession awarded to the IUP and IUPN holders has a maximum size of 100,000 ha for metal minerals and 50,000 ha for coal but, after relinquishment and prior to production stage, the permit can only hold a maximum of 25,000 ha for metal minerals and 15,000 ha for coal.
The law says that all the existing mineral and coal CoWs remain valid until the end of the contracts. However, all terms of the contract should be amended according to the new law within one year since the enactment of the law, except for terms related to state revenue.
One of the controversial points of the new law is that the obligation for the existing CoW holders to refine their products in facilities located in Indonesia starting from five years after the enactment of the new law.
Other key points of the law:
? In order to protect the national interest, the government can control the production and exportation of mining products. As such, the government can set the maximum amount of production of certain commodities for each province.
? In order the protect the national interest, the government, after consulting with the House, can set a policy prioritizing the use of mineral and coal products for the domestic market.
? The IUP and IUPN holders are obliged to use the service of local or national mining service companies in their operations.
? The IUP and IUPN holders are obliged to process and refine their products in Indonesia, using their own facilities or those owned by other IUP and IUPN holders. The existing CoW holders are obliged to refine their products in Indonesia starting from five years after the enactment of the law.
? The IUP and IUPN holders are obliged to allocate funds for reclamation and post-mining. (Bodega)