Minister issues new mining divestment regulation
Thursday, January 26 2017 - 01:37 AM WIB
Minister of Energy and Mineral Resources Ignasius Jonan issued on Wednesday new Ministerial Regulation No 9/2017 on the divestment mechanism of mineral and coal mining companies.
According to the new regulation, which is an implementing ruling of recently introduced Government Regulation No 1/2017, mineral and coal mining companies holding the IUP Production Operation mining business license and IUPK special mining business license are obliged to gradually divest up to 51 percent shares to Indonesian investors after five years of production.
The divestment process must start within 90 days, after having been in production for five years, offering the shares first to the central government. The second in line is the regional governments, if the central government declines to take the offer, followed by state-owned companies, regional government-owned companies, and the last offer is given to Indonesian private investors.
Mining companies divesting their shares are not allowed to lend money to the Indonesian participants.
If the shares offered to the aforementioned Indonesian participants fail to be implemented, the mining firms can offer the shares to investors on the Indonesia Stock Exchange.
The regulation also stipulates that the price of the shares to be divested must be based on fair market value, without taking into account the coal or mineral reserves of the mining firms when the divestment program is implemented.
Once this new regulation becomes effective, mineral mining companies holding so-called mining contract of work (or KK) and coal mining companies holding the coal contract of work (or PKP2B) which are required to divest their shares must follow this regulation.
The new regulation, however, fails to specify the divestment time-frame for mining firms such as the gold and copper giant PT Freeport Indonesia, a local subsidiary of US-based Freeport McMoRan Copper & Gold, which has been in production for decades, or more than five years.
The Indonesian government now owns 9.36 percent stake in PT Freeport. This means that the company is obliged to divest another 41.64 percent. Ministry officials have said that PT Freeport is required to implement its mandatory divestment this year. But it remains unclear as to whether the company must divest the entire 41.64 percent stake this year, or only 10.64 percent this year as planned previously.
The company last year offered the 10.64 percent to Indonesian investors at a price tag of US$1.7 billion, taking into account its gold and copper reserves in Papua until 2041, while its existing contract will expire in 2021. The government said that the price is too expensive, stressing that the fair market value for the shares should be $630 million.
Editing by Reiner Simanjuntak