MEMR issues new regulation on divestment obligation proceduce, investment changes

By Romel S. Gurky

The Ministry of Energy and Mineral Resources (MEMR) has issued Regulation No 27/20013 on the procedure of the share divestment obligation of foreign mining companies, and on investment changes in the minerals and coal mining businesses.

According to the copy of the new regulation, obtained by Petromindo.com on Tuesday, foreign investment mining companies holding the so-called production operation IUP mining permits and production operation IUPK mining permits are required to start gradually divesting their shares to Indonesian investors after five years of production, so that by year ten, the Indonesian investors will control at least 51 percent of the shares.

The shares to be divested are barred from being pleged as mortgage. The share divestment obligation does not include shares divested via the Indonesian capital market.

The foreign mining companies are obliged to make the share divestment offer at the latest 90 days after the five-year production period has been achieved to Indonesian investors with the following priority:
a. The Government via the Ministry, Provincial Government, and local Regency/Mayoralty governments.
b. State-Owned Enterprises (BUMN) and Local Government-Owned Enterprises (BUMD); and
c. National Private Companies

The Government via the Minister, Provincial Government, and local Regency/Mayoralty Governments within 60 calendar days after the date of the share divestment offer must make written response on the offer to the foreign mining companies.

If the governments (both central and local governments) are not interested in the offered shares or fail to make the requested written response within the specified period, then the foreign mining companies are required to make the offer to BUMN and BUMD, which then must make written response within 60 days.

If they are not interested or fail to response within the specified period, the foreign mining companies are then obliged to make the offer to national private companies, which then must make written response within 30 days.

If the divestment program for the first batch of shares can?t be realized, the divestmet process must be repeated, accumulating the number of shares to be divested.

In terms of payment procedure and share delivery, they must be implemented with 90 days at the latest since the sale and purchase agreement has been signed by both parties.

The price of the shares to be divested is determined based on the replacement cost on the investment made by the foreign companies.

Meanwhile, the new regulation also stipulates investment changes in minerals and coal mining businesses can be implemented after obtaining approval from the Minister, Governor, or Regent/Mayor in accordance with their respective authorities.

The investment changes include the following:
a. Investment and source of funding changes;
b. Changes in investment scheme from foreign investment (PMA) to domestic investment scheme (PMDN), or vice versa;
c. Changes in the articles of association;
d. Changes in the board of directors and commissioners; and
e. Changes in the shareholders.

Request for changes in investment and source of funding can be made by the holders of exploration IUP permits, exploration IUPK, production operation IUP, production operation IUPK, special production operation IUP for processing and or refining, or special production operation IUP permits for transportation and sales to the Minister via the Director General, to the Governor, or to the Regent/Mayor.

Copies of the permits, which have been registered with the Directorate General, and declared clear and clean, must be accompanied when making the request.

Request for the changes in investment scheme from PMA to PMDN or vice versa can be put forward to the Minister via the Director General.

The change from PMDN to PMA for exploration IUP and exploration IUPK permit holders can only be made if the foreign ownership is not more than 75 percent. Meanwhile, the change from PMDN to PMA for production operation IUP and production operation IUPK holders can only be made if the foreign ownership is not more than 49 percent.

Changes in the articles of association among others include:
a. Name of companies and/or address;
b. Size of authorized capital;
c. Size of issued and paid-up capital; and/or
d. Status of company from non-listed to publicly-listed and vice versa.

Request for changes in the board of directors and commissioners must include the following:
a. Reasons and basis for making the proposed change;
b. Results of shareholders meeting before being documented by notary;
c. The latest articles of association document;
d. Proof of payment of fixed regular fees during the past two years for the holders of exploration IUP, exploration IUPK, production operation IUP, and production operation IUPK;
e. Proof of payment of production fees during the past two years for the holders of production operation IUP and production operation IUPK;
f. Proof of payment of production fees for the holders of exploration IUP or exploration IUPK, which have temporary permit to carry out transportation and trade, as well as for special production operation IUP for processing and/or refining utilizing associated minerals;
g. Audited financial statements during the past two years; and
h. Copies of the exploration IUP, exploration IUPK, production operation IUP or production operation IUPK permits which have been registered with the Directorate General and which have been declared clear and clean.

Changes in share ownership of foreign investment scheme (PMA) for exploration IUP and exploration IUPK can only be made if the foreign ownership is not more than 75 percent. Meanwhile, for production operation IUP and production operation IUPK can only be made if the foreign ownership is not more than 49 percent.

Follow-up approvals, registration, documentation and others for the request of investment changes must also be made with the Investment Coordinating Board (BKPM) and or the Law and Human Rights Ministry.

The holders of production operation IUP or production operation IUPK breaching the regulation will be given administration sanctions including:
a. Warning letter;
b. Temporary suspension of activities; or
c. The production operation IUP or production operation IUPK permits being revoked.

In transitional provisions, the holders of exploration IUP and production operation IUP which have changed status into PMA (foreign investment scheme) with share ownership from foreign capital of more than 49 percent prior to this new ministerial regulation are also affected by the share divestment obligation.

Editing by Reiner Simanjuntak