04 Aug 2017
NEW MINERAL EXPORT RULES AND IMPLICATIONS FOR MINING COMPANIES
Indonesian Government Regulation No.1 2017 triggers major shifts in the country’s mineral and coal mining industries. Mineral mining companies who depend heavily on mineral exports will be particularly affected by the new policies. Primary changes require all companies operating under a Contract of Work to transfer to a single licensing regime, and introduce stringent mineral export processing standards.
Indonesian Government Regulation No. 1 of 2017, issued in January, is the fourth amendment to Government Regulation No. 23 of 2010 on the Implementation of Mineral and Coal Mining Business Activities (“GR 1/2017“).
GR 1/2017 has prompted the Minister of Energy and Mineral Resources (“MEMR”) to issue a suite of 3 (three) implementing regulations so far, as follows:
Historically, the MEMR regulations originated from Law No. 4 of 2009 on Mineral and Coal Mining (the “Mining Law 2009”). Article 170 of the Mining Law 2009 requires holders of a Contract of Work (“CoW”) or Coal Contract of Work to commence their mining product processing and purifying activities domestically within 5 years from the enactment of Mining Law 2009 and no later than 12 January 2014.
Requirements for Mineral Exports
MEMR Reg 5/2017 and its amendment set out the requirements that holders of a CoW, Mining Business Operating Production License (Izin Usaha Pertambangan “IUP OP”) or Special Mining Business Operating Production License (Izin Usaha Pertambangan Khusus “IUPK OP”) must meet to continue exporting processed minerals (concentrates) and resume exports of unprocessed nickel and bauxite. In the first instance, mineral mining companies operating under a CoW must convert to an IUPK OP.
Further, both IUP OP and IUPK OP holders (including IUPK OP holders who have converted from a CoW) may only continue mineral exports for five years - up to 11 January 2022, and only if they satisfy the following conditions:
Conversion from a CoW to IUPK OP
The following are the provisions of the MEMR regulations regarding the conversion of the CoW into IUPK OP:
As mentioned above, the MEMR regulations are the follow-up regulations of Law No. 4 of 2009 regarding Mineral and Coal Mining, which initially introduced the regime shift from CoW to IUPK OP. The mechanism for conversion from a CoW to IUPK OP under the new regulations is not yet entirely clear. In particular, uncertainty remains over what the new terms and conditions under an IUPK OP will be in comparison to the existing CoW. There is also question over whether the requirements for contract conversion under MEMR Reg 5/2017 are legitimate under the existing mining law, and some speculation that the provisions will be challenged. Nevertheless, at present the regulations offer mining companies which depend on mineral exports little alternative but to convert to an IUPK OP in order to continue these activities. (by: Zensy Pratiwi, Wahyuni Hanindriyowati & Mahatma Hadhi)