Ministry wants all mining firms to divest up to 51% shares

Courtesy of ESDM

The Ministry of Energy and Mineral Resources wants all mining firms controlled by foreign investors to divest up to 51 percent of their shares to Indonesian investors, Kontan reported on Wednesday.

The paper quoted Director General of Mineral and Coal at the ministry Bambang Gatot Ariyono as saying that the mandatory divestment of up to 51 percent will not only be applied to mining companies holding the so-called IUP mining business license and IUPK special mining business license, but also applies to mining companies holding the mining contract of work (CoW).

He cited as an example that IDX-listed integrated nickel mining firm PT Vale Indonesia Tbk is also required to divest its stake up to 51 percent to Indonesian investors, although its current contract stipulates a mandatory divestment of only up 40 percent. He added that once the contract has been amended, the divestment obligation will reach 51 percent.

The government has recently introduced a new Government Regulation No 1/2017 allowing mineral mining companies to continue export of mineral concentrates for another five years under certain conditions including commitment to develop domestic smelter, convert their mining permit status from CoW to IUPK, and pay export duty. Mining companies controlled by foreign investors are required to gradually divest up to 51 percent of their shares to Indonesian investors starting five years after production in the hope that after 10 years, 51 percent of their shares are already in the hands of Indonesian investors.

The new regulation does not stipulate requirement for CoW mining firms to divest up to 51 percent shares. Under the previous regulations, mining companies with integrated operation such as PT Vale are only required to divest up to 40 percent stake, while those with underground mining operation such as gold and copper giant PT Freeport Indonesia are required to only divest up to 30 percent stake.

Based on the GR No 1/2017, however, PT Freeport is required to divest up to 51 percent shares as it would be required to convert its CoW into IUPK if the company, which is a subsidiary of US-based Freeport McMoRan Copper & Gold, wishes to continue export of copper concentrates.

Meanwhile, Director of Center for Indonesian Resources Strategic Studies (Ciruss) Budi Santoso said that according to GR No1/2017, the mandatory divestment of up to 51 percent is only applied to mining firms holding the IUP and IUPK permits. This means that if companies such as PT Vale wish to retain their CoW mining permit status, they are obliged to divest only up to 40 percent stake. ?The government must honor their mining contracts,? he said. (*)