Indonesian Energy and Infrastructure Seminar Luke Devine Hadiputranto, Hadinoto & Partners is a member of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an “office” means an office of any such law firm. Mining Sector – Regulatory Developments, Opportunities and Challenges
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Indonesian Energy and Infrastructure Seminar
Luke Devine
Hadiputranto, Hadinoto & Partners is a member of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an “office” means an office of any such law firm.
Mining Sector - Regulatory Developments, Opportunities and Challenges
• For purposes of regulation, mining projects treated differently depending on whether there is any foreign ownership in mining company:– With foreign investment – Contract of Work (CoW)
for general mining and Coal Contract of Work (CCoW) for coal mining (together “CoW”)• Binding legal contract between Government and mining
company (foreign investment (PMA) company)– Without foreign investment
• Mining Authorization (KP) - license (including regional mining license/SIPD for Class C Minerals)
Mining Sector - Regulatory Developments, Opportunities and Challenges
• For new mining projects involving foreign investment, a CoW is entered into between Government and the mining company:– Investor establishes a foreign investment (PMA)
company• Can be a joint venture with foreign/local interests: current
foreign ownership restriction for new companies is 95% maximum
• No requirement on minimum amount of capital; existing policy refers to what is reasonable in the industry
– PMA signs contract with Government setting out rights and obligations of both parties in relation to mine development
• For new mining projects not involving foreign investment, a KP is issued by the respective regional government
Mining Sector - Regulatory Developments, Opportunities and Challenges
• Contract of Works vs Mining Authorization– Time for grant
• COW application is now done at regional level• COW draft is initialed by the head of region, after being
discussed by the applicant and the negotiation team (comprising central and regional government officials)
• The initialed draft is submitted by the Minister of Energy and Mineral Resources (“Minister”) to BKPM to obtain its recommendation and to be approved by the (central) House of Representative (DPR)
• After being approved by BKPM and DPR, the Minister will submit the draft COW to the President to obtain his approval
• The approved COW draft will be signed between the Minister, on behalf of the Government, and the applicant, witnessed by the relevant head of region
Mining Sector - Regulatory Developments, Opportunities and Challenges
• Draft Mineral and Coal Mining Law (January 2005 version)– Key issues:
• No longer different treatment of foreign and domestic investors– COWs and KPs abolished– Replaced with: (i) permits (IUP/mining license, IPR/people’s mining
right) based on application or tender; (ii) agreements between contractor company and state-owned company as IUP holder; and (iii) assignment (penugasan) for radioactive mineral mining activities
• Bring regulation of mining activities into line with principles of the Autonomy Laws
– Proposed provisions on authorities of each level of regional government (central government level, provincial level, district level)
– Generally in accordance with the prevailing laws and regulations on regional autonomy
Mining Sector - Regulatory Developments, Opportunities and Challenges
• Draft Mineral and Coal Mining Law (January 2005 version)– Other new features include (cont’d):
• Mining closure and post mining obligations– Include reforestation, natural conservation and provision of
‘reclamation bond’ by IUP holders– Subject to further implementing regulation
• Suspension of mining activities– Due to force majeure events or other events which result in
partial or whole suspension of mining activities– Suspension does not affect the validity period of IUPs– Subject to further implementing regulation (including what
constitutes force majeure and what constitutes ‘other events’)