Opinion: Further Tightening on Foreign Ownership Over Indonesia's Mineral Wealth

Introduction

Recent regulatory and policy developments within the halls of the Indonesian Ministry of Energy and Mineral Resources ("MEMR") and Indonesia's Capital Investment Coordinating Board ("BKPM") have once again shot fear into the hearts of foreign investors in Indonesia's mining sector.

A recent regulation issued by BKPM has effectively closed the door on the possibility of foreign investors satisfying their mandatory divestment obligations through structuring the holding of their mining assets through an Indonesian listed company. Whilst it has been a long standing policy of the MEMR to treat Indonesian listed companies as "domestic" for the purposes of foreign share divestment obligations under Contracts of Work and the regulatory framework applicable for Mining Business Licence (known by their Indonesian acronymn as "IUPs"), the fact that BKPM now requires foreigncontrolled Indonesian listed companies to convert their status to become foreign investment ("PMA") status companies will likely result in the MEMR taking the view that these Indonesian listed companies (and any of their subsidiaries) must now comply with the mining divestment regulations.

In further bad news for foreign investors, the MEMR has determined that for companies who have been issued an IUP as part of the process of converting over all of the previous Kuasa Pertambangan (being the form of mining authorization granted under the previous 1967 Mining Law) to IUPs, the foreign ownership restrictions that will now be imposed are:
- for an Exploration IUP holder, 75% maximum foreign ownership permitted;
- for a Production Operation IUP holder, 49% maximum foreign ownership permitted (irrespective of how long the project has been in production for).

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