In an effort to provide more legal certainty for investors and to simplify the licensing procedures in the mineral and coal mining (“Mining”) sector, the Indonesian Government finally issued Law No. 3 of 2020 (“Law 3/2020”), which amends and annuls certain provisions of the previous Mining Law No. 4 of 2009 (“Law 4/2009”).
Because the previous Law 4/2009 led to overlapping authorities between the Central Government and various Regional Governments, which often caused confusion to practitioners, Law 3/2020 tackles the issue by shifting the authority of the mining sector back to the Central Government (represented by the Minister of Energy and Mineral Resources (“MEMR”)). Accordingly, starting from 10 December 2020, all clients must apply for their mining business licenses to the Central Government instead of the Regional Government, and any new mining licenses issued by a Regional Government will be deemed invalid after 10 December 2020. As a consequence of the shifting of authority to the Central Government, Law 3/2020 now requires both existing and new mining companies to obtain their Business Identification Number, standard certificate, and other relevant business licenses, such as IUP or Transportation and Sales License (Izin Pengangkutan dan Penjualan) from the Central Government. Moreover, existing mining companies must adjust their business licenses to comply with Law 3/2020 within 2 years from 10 June 2020.
In addition to the shifting of the licensing authority to the Central Government, Law 3/2020 also simplifies the dual Mining Business License (Izin Usaha Pertambangan or “IUP”) requirement —Exploration IUP and Production Operation IUP—into a single IUP. We believe this should significantly reduce red tape and expedite the issuance process of Mining business licenses.
Another significant change introduced by Law 3/2020 is the assurance given to IUP holders about the extension and continuance of their mining operations. Under Law 3/2020, IUP holders that have completed their exploration activities are guaranteed by law to be able to continue their production operation activities. The same assurance and guarantee are also given to existing Coal Contracts of Works (“CCOW”) and Contracts of Works (“COW”), where (a) CCOW or COW that have not been extended are now guaranteed an extension in the form of a Special Mining Business License as Continuation of Contract/Agreement Operations (Izin Usaha Pertambangan Khusus sebagai Kelanjutan Operasi Kontrak/Perjanjian) for two additional terms each for a period of up to 10 years; and (b) CCOW or COW that have obtained their first extension are guaranteed the second extension in the form of a Special Mining Business License as Continuation of Contract/Agreement Operations (Izin Usaha Pertambangan Khusus sebagai Kelanjutan Operasi Kontrak/Perjanjian) for up to 10 years.
Other key points of Law 3/2020 are summarised below:
- Transfer of IUP and Special IUP (“IUPK”). In contrast to the previous Law 4/2009, which explicitly prohibited the transfer of IUP and IUPK, Law 3/2020 allows the transfer of IUP and IUPK, provided it is approved by the MEMR. The procedure, as well as administrative, technical and financial requirements for the transfer of IUP and IUPK will be further regulated.
- Positive Incentives for Integrated Mining Activities. Under the new law, integrated mining businesses can now have a production operation term of 30 years and another guaranteed 10 years for each extension, which is much longer than the 20-year operational term for unintegrated mineral and/or coal mining activities.
- Divestment by Foreigners. The general rule of 51% divestment obligation remains intact, but Law 3/2020 now opens a room for the Central Government (jointly with a regional government and/or a state/region owned company) to determine an alternative divestment scheme and introduces the possibility of divesting through the Indonesian Stock Exchange.
- Reclamation and Post-Mining Activities. Law 3/2020 introduces more specific requirements for reclamation and post-mining activities. Before shrinking or returning their mining area, IUP or IUPK holders in the stage of operation production activities must complete their reclamation process and complete their post-mining deposit fund. There has yet to be a clear technical explanation of the above, but we would expect such further explanation to be provided in the implementing regulation. In addition, it is important to note that the new law imposes a maximum imprisonment term of 5 years and a maximum fine of IDR 100 billion on mining companies that fail to meet the requirements.
- Reserve Fund for Discovery of New Reserves. Holders of IUP or IUPK in the stage of production preparation activities are required to provide a mineral and coal resilience reserve fund. Further provisions on the reserve fund will be regulated in the implementing regulation.
- Surat Izin Penambangan Batuan – SIPB. Law 3/2020 now requires Mining companies engaging in rock mining for construction purposes (including the construction projects funded by the Central Government and/or Regional Government) to obtain a license called Rock Mining Permit (Surat Izin Penambangan Batuan – SIPB), which was not recognized by the previous laws and regulations.