Government Regulation 1/2017, which was promulgated in January 2017, has triggered a major shift in Indonesia's mineral and coal mining industries. Mineral mining companies that 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.
Government Regulation 1/2017 is the fourth amendment to the Government Regulation on the Implementation of Mineral and Coal Mining Business Activities (23/2010). To date, it has prompted the Ministry of Energy and Mineral Resources to issue three implementing regulations:
- the Regulation regarding Minerals' Increased Added Value through Domestic Mineral Processing and Refinery (5/2017), dated January 11 2017;
- the Regulation regarding the Procedure for the Granting of a Production Operation Specific Mining Business Licence as a Continuation of a Contract of Work or Coal Mining Contract of Work (15/2017), dated February 10 2017; and
- the Regulation regarding an Amendment to Ministry of Energy and Mineral Resources Regulation 5/2017 (28/2017), dated March 30 2017.
The Ministry of Energy and Natural Resources regulations originated from the Law on Mineral and Coal Mining (4/2009). Article 170 of the law required holders of contracts of work and coal mining contracts of work to commence their mining product processing and purification activities domestically within five years from the enactment of the law and no later than January 12 2014.
Ministry of Energy and Natural Resources Regulations 5/2017 and 28/2017 set out the requirements that holders of a contract of work, mining business operating production licence or special mining business operating production licence must meet in order to:
- continue exporting processed minerals (concentrates); and
- resume exports of unprocessed nickel and bauxite.
In the first instance, mineral mining companies operating under a contract of work must convert to a production operation specific mining business licence.
Further, both mining business operating production licence and production operation specific mining business licence holders (including production operation specific mining business licence holders that have converted from a contract of work) can continue to export minerals, but only for five years (until January 11 2022) and only if they have:
- obtained the required export recommendation from the Directorate General of Mineral and Coal and the required export permit from the Ministry of Trade;
- paid the export duty in full; and
- complied with the minimum processing limit set out in Attachment 1 of Ministry of Energy and Natural Resources Regulation 5/2017.
Conversion from contract of work to licence
A conversion application must be submitted to the Ministry of Energy and Natural Resources before a contract of work expires. The application must be accompanied by:
- the required territorial map;
- proof of payment of the fees; and
- work and budget plans.
The ministry must approve or reject the application within 14 business days from the submission of the complete application. The issuance of the production operation specific mining business licence does not automatically terminate the contract of work.
There are two types of production operation specific mining business licence:
- licences with a validity period which covers the period up until the contract of work's expiration (Type 1); and
- licences with a validity period which covers the adjustment time for the operation's continuity (Type 2).
If a Type 2 licence is granted, the contract of work and its related consent documents will still prevail.
On the expiration of a Type 2 licence, if a settlement with respect to the adjustment of the licence is reached, the contract of work and related documents between the government and contract of work holder become invalid simultaneously with the issuance of the new extended licence, pursuant to the laws.
Ministry of Energy and Natural Resources Regulation 28/2017 does not provide further explanation or refer to the laws regarding the production operation specific mining business licence. However, Article 112(2) of Government Regulation 1/2017 states that contracts of work and coal mining contracts of work:
"which have not obtained an extension approval may, upon their expiration, be extended into an extended [production operation specific mining business licence] for operation continuation purposes without going through a tender."
On the expiration of a Type 2 production operation specific mining business licence, if a settlement with respect to the adjustment of the licence is not reached, the licence becomes invalid and the mining business must be conducted under the contract of work.
As mentioned above, the Ministry of Energy and Natural Resources regulations are the follow-up regulations to the Law on Mineral and Coal Mining, which initially introduced the shift in regime from contracts of work to production operation specific mining business licences. The mechanism for converting a contract of work to a production operation specific mining business licence under the new regulations is not yet clear. In particular, uncertainty remains as to how the new terms and conditions under a production operation specific mining business licence will compare to those under the existing contract of work. Whether the requirements for contract conversion under Ministry of Energy and Natural Resources Regulation 5/2017 are legitimate under the existing mining law has also been questioned, with some parties speculating that the provisions will be challenged. Nonetheless, at present, the regulations offer mining companies which depend on mineral exports little alternative but to convert to a production operation specific mining business licence in order to continue these activities.
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