General Mining In Indonesia Under Law No.4 of 2009

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General Mining In Indonesia Under Law No.4 of 2009

27 May

Introduction:

Enacted in 1967 and effective for 42 years, Law No. 11 of 1967 on General Provisions on Mining finally amended by Law No. 4 of 2009 on Mineral and Coal Mining, (Law No.4/2009) in the new mining law there are several major amendments interalia are the amendment of Contract of Works (Kontrak Karya), Coal Contract of Work (Perjanjian Karya Pengusahaan Pertambangan Batu Bara/PKP2B) and Mining Concession (Kuasa Pertambangan) to become Mining Business License, Small Scale Mining Business License, Special Mining Business License, obligation to conduct Smelting/refining in Indonesia, Domestic market obligation, etc.

Under this article, further will be elaborated details of Law No. 4/2009 and the comparison with the previous mining under Law No. 11/1967
Relevant Regulations:
1. Law No. 11/1967 as amended by Law No. 4 of 2009 on Mineral and Coal Mining (“Mining Law“);
2. Government Regulation No. 32 of 1969 on Implementation regulation of Law No. 11/1967 (“GR No. 32/69“) as amended by Government Regulation Number 75 of 2001 on the Second Amendment of GR 32/69 (“GR No. 75/2001“);
3. Government Regulation No. 27 of 1980 Concerning Mining Business Categorization (“GR 27/1980″);
4. Circular Letter of Department Energy and Mineral Resources General Directorate of Mineral Coal Mining and Geothermal Concerning Mineral and Coal Mining License (before the enactment of Presidential Decree) No. 03.E /31/DJB/2009 dated 30 January 2009 (“Circular Letter No. 03.E/31/DJB/2009“);
5. Letter from Department of Energy and Mineral Resources General Directorate of Mineral Coal Mining and Geothermal on Mineral and Coal Mining License (before the enactment of presidential decree) Number 1053 /30/DJB/2009 dated 24 March 2009 (“Letter No. 1053/30/DJB/2009“);
Mining Areas:

Mining business licenses as mentioned in point 4 below, are categorized pursuant to where the mining area are located, the location shall be determinate by the government having coordination with regional government and consultation with house of representatives of republic of Indonesia (the “DPR“). Under Law No.4/2009 the location of mining business is divided into following sectors:
1. General Mining Business Areas (Wilayah Umum Pertambangan – WUP);
  
  WUP areas are determinate by the Government having coordination with regional government, the product of the coordination shall be delivered in to DPR. Government delegate its partial authority (the delegation of authorities small be limited only for the Non-mineral metal and rock mining area within one district/city or overlapping the districts/cities) in the determination of WUP to the provincial governor.
  
  WUP consisting of one or more (Wilayah Izin Umum Pertambangan-WIUP). The WIUP areas that overlaps boundaries of provinces, or districts/cities, and/or within one a district/city. The criteria to granted WIUP in the one WUP are (geographical location, conservation study, support environmental protection, optimalization of mineral and/or coal resources and level of population density) to determine one or more WIUP in the WUP criteria (article 18 Law No. 4/2009). [Further provision on procedures for determining boundaries and areas of WIUP is stated in the government regulation].
2. Community Mining Territories (Wilayah Pertambangan Rakyat – WPR);
  
  The territories WPR is determinate by the regent/mayor after having consultation with district/city regional house of representatives. The WPR shall be determinate following criteria (article 22 Law No.4/2009): .
  1. Having secondary mineral reservation located in rivers and/or between the banks of rivers;
  2. Having primary metal or coal reserves with maximum depth 25 (twenty five) meters;
  3. Posses the terrace sediment, flood plains, and ancient river sediment;
  4. Maximum areas for WPR is 25 (twenty five) hectares;
  5. Stated type of mining commodity that will be mined; and
  6. Location of community mining activity that has been exploited for minimum period 15 (fifteen) years.
  Community mining activities has been exploited, but has not been determinate as WPU are prioritized to be determinate as WPR.
3. State Reserve Areas (Wilayah Pencadangan Negara – WPN);
  
  WPN is determinate by the government upon consent of DPR and with due regards to the regional aspiration, shall determinate state reserve areas as area that reserved for certain commodities (interalia: copper, lead, gold, iron, nickel, and bauxite and coal) and conservation areas to keep balance between ecosystem and the environment.
  
  Certain commodities of WPN areas can be commercialized upon DPR approval, after such areas have been commercialize such area status are change into Special Mining Area (the “WUPK”), and the WUPK will be commercialized by the government with having coordination with regional governments.
  
  The mining business activities in WUPK shall be carried out in the form of Special Mining Permit (the “IUPK“). One WUPK shall consist of one or several Special Mining Permit Area (the “WIUPK“) – details criteria to determine several WIUPK in the one IUPK is regulated under article 32 Law 4/2009.
Mining Business License:

Prior enactment of Law 4/2009, mining business activities is conducted under Contract of Works (Kontrak Karya), Coal Mining Exploitation Working Arrangement (Perjanjian Karya Pengusahaan Pertambangan Batu Bara/PKP2B) and Mining Concession (Kuasa Pertambangan), after 2009 since the enactment of Law 4/2009 those working agreement is amended into mining business license, thereafter in order to conduct mining business activity in Indonesia sole proprietorship/legal entity that intend to conduct mining activities in Indonesia shall obtain Mining Business License.

IUP licenses issued by the Government of Republic of Indonesia (the “GOI”), however the partial authority are delegated to the Minister of Energy and Natural Resources (the “Minister“), Provincial Government, and Regional Government (major/regent) (the “Relevant Government“). The authority to issue IUP licenses are determined pursuant to the mining working area location, following description are the detail authority that delegated to relevant government by GOI under Law 4/2009 pursuant to the mining area located:
1. The regents/majors are entitled to issue the IUP in the event the mining areas located in one district/city;
2. The governors are entitled to issue IUP license in the event the mining working area overlaps the boundaries of districts/cities in one province, pursuant to local regents/majors recommendation; and
3. The Minister entitled to issue the IUP license in the event the mining working area overlaps the boundaries of provinces, by recommendation of governors.
Transfer of right

In the previous regime under law 11/1967, the holders of mining working area has right to transfers the working permit into third parties, however under Law 4/2009 regime, mining working areas/mining permit are prohibited to be transferred to third parties.

New Types of Mineral Founded in the Mining Areas

IUP License is license to manage 1 (one) types minerals mining or coal mining. When in the exploration or exploitation the company discover different minerals in their areas, the company how intends to manage such mineral shall submit a new IUP license and shall be prioritize by the GOI to manage the new mineral has been discovered. …

Transport and Sales License

Before the company sell the minerals or coal that has been excavated from mining area, the company shall apply temporary license to conduct transports and sales activity
1. Types of Mineral
Minerals that contain in the mining working area are categorized under following types:
1. Mineral mining which is categorized under following sector:
  1. Radioactive mineral mining;
  2. Metal mineral mining;
  3. Non-Metal Mineral mining;
  4. Rock mining;
2. Coal mining;
IUP License Categorization

Law No.4/2009 also categorized IUP license pursuant to mining location into following categorize:

(a) Mining Business License (Izin Usaha Pertambangan – “IUP“)
1. IUP Exploration; and
2. IUP Production Operation.
1. Small Scale Mining License (Izin Pertambangan Rakyat – IUPR); and
  1. IUP Exploration; and
  2. IUP Production Operation.
2. Special Mining License (Izin Usaha Pertambangan Khusus – IUPK);
  1. IUP exploration; and
  2. IUP Production Operation.
Each types IUP license is divided into 2 (two) stages
1. IUP Exploration:
  1. Definition;
    
    IUP Exploration (Izin Usaha Pertambangan Eksplorasi) is a business license to perform general surveys, explorations, and feasibility studies.
  2. Requirements of IUP Exploration;
  3. Article 39 Law 4/2009.
  4. Validity Period of IUP Exploration;
    
    Exploration IUP shall include the general survey activities, exploration and feasibility studies. Law No. 4/2009 distinguishes the granted period based on the mining business categorized [please refer to table bellow]:
2. IUP Production Operation:
  1. Definition;
    
    Mining Business License Production Operation (Izin Usaha Pertambangan Operasi Produksi) is a mining business license to perform production and operation activities which shall be issue after the implementation of IUP Exploration has been completed.
    
    Each holder of IUP Exploration shall be assured to obtain IUP production operation in furtherance of the IUP exploration mining business. This license can be obtained by the holders of Exploration IUP with conditions such holders having data on feasibility study finding, upon bid result of metal mineral or coal mining license areas.
  2. IUP Production Operation minimum must state at least the following terms:
  3. Article 39 Law 4/2009 stated the requirements to issue IUP Exploration.
3. Validity Period for IUP and Wide of Area:
  
  The validity of mining business licenses are determined pursuant to the mining material under the IUP, following are validity period and wide of area for IUP exploration and Production Operation:

Mining Types

Period

Area

Remarks

Metal Mineral Mining

IUP Exploration:

Maximal 8 years, shall include 1 year of general surveys, 3 years of exploration.

Extendable for 1 year 2 times respectively, as well as 1 year of feasibility studies, extendable to 1 year 1 time.

IUP Exploration:

Minimum mining working area 5,000 Ha and maximum mining working area 100,000 Ha.

Upon mining working area that has issued an IUP Exploration, the GOI is entitled to issue another IUP license to the third parties to commercialize different minerals that can be found in the relevant mining working area. Such another IUP license can be granted to the third parties in the event different mineral has been found is located in different location either vertical and horizontal from the first working mining area and pursuant to the consideration from first mining license holder.

IUP Production Operation:

20 years, extendable 2 times each extension can be granted for period 10 years.

20 years this period shall be included 2 years construction phases.

IUP Production Operation:

Maximal mining working area 25,000 Ha;

Non-Metal Mineral Mining

IUP Exploration:

3 years and for certain typed nonmetal minerals (inter alia limestone for cement industry, diamonds and precious stones) may be granted for period of at most 7 years.

3 three years period shall include 1 year of general survey, 1 year of exploration, and 1 year of feasibility studies.

7 years period shall include 1 year of general survey, 3 years of explorations extendable to 1 year 1 time.

IUP Exploration:

Minimum mining working area 500 Ha and maximum mining working area 25,000 Ha

Over the area that has been encumbering by IUP Exploration, the GOI can be grant another IUP to the third parties to commercialize different minerals that can be found in the working area.

The government can be granted to the third parties in the event the different mineral is different location (vertical and horizontal) from the working mining area and pursuant to the consideration from first mining license holder.

IUP Production Operation:

can be granted for period 10 years and can be extended 2 times, each extension can be granted for period of 5 years (10+5+5 – maximum period 20 years);

IUP Production Operation:

Maximal mining working area 5,000 Ha.

Rock Mining

IUP Exploration

Maximal 3 years shall include 1 year feasibility study, 1 year of general survey, and 1 year of exploration.

IUP Exploration:

Maximal Mining working area 5,000 Ha

IUP Production Operation

can be granted for period of 5 years and can be extended 2 times, each extension can be granted for period of 5 years (5+5+5 – maximum period 15 years);

IUP Production Operation:

Maximum 1,000 Ha

Coal Mining

IUP Exploration:

7 years including 1 year general survey, 1 year exploration, 2 years exploration, extendable for 2 times

IUP Exploration:

Minimum 5,000 Ha and Maximum area 50,000 Ha

IUP Production Operation:

can be granted for period 20 years and can be extended 2 times, each extension can be granted for period 10 years (20+10+10 – maximum period 40 years);

Period of 20 years are included 2 years construction period;

IUP Production Operation:

Maximal 15,000 Ha

Community Mining License (the “IPR License”):
1. Definition:
  
  IPR license means the license to perform mining business within a small scale mining area with a limited area size and investments. This license is covers mining activities for minerals, such as metal or non metal, rock mining.
2. IPR is categorized into following types:
  1. Metal mineral mining;
  2. Non-metal mineral mining;
  3. Rock mining; and
  4. Coal mining.
3. License Issuer:
  
  The IPR license is issued by regents/mayors pursuant the IPR mining areas are located. Following are the authority of regional government to issue an IPR license:
  1. regents/ mayors shall grant IPR license to particularly local residents, either individuals or community groups and or cooperatives;
  2. The regent/mayors may delegate theirs authority to head of sub-district .
4. Subject/ holders of IPR License:
  1. individual, shall be at most one hectare;
  2. community group, shall be at most ten hectares;
  3. cooperative shall be at most ten hectares.
5. Validity Period;
  
  IPR license is granted for period of 5 years and can be extended.
Special Mining License (the “IUPK”):

IUPK is a license to perform mining business in a special mining license area, IUPK also includes two phases, (i) Exploration and (ii) IUPK Production Operation;
1. IUPK Exploration is a business license to perform general survey and feasibility studies in certain mining business license area;
2. Production Operation IUPK is a business license to perform production operation step activities in certain mining business license zone which shall be issued after the performance of IUPK Exploration has been done.

Conditions		Special Mining Permit (IUPK)
Conditions		Exploration Special Mining Business License	Production Operation Special Mining Business License
Business Scope		General survey, exploration and feasibility studies	Construction, mines; processing and refining, transportation and sales
Period	Metal	8 years	20 years, extendable twice for 10 years each
Period	Coal	7 years	20 years, extendable twice for 10 years each
Special Mining Business License Zone Breadth	Metal	Max. of 100.000 hectares	Max. of 25.000 hectares
Special Mining Business License Zone Breadth	Coal	Max. of 50.000 hectares	Max. of 15.000 hectares

Mining activities under special Mining Business License should be conducted in a special mining working area by submitted IUPK license bid proposal. Land that used for IUPK License is a part of special mining working area is a state reserve area (Wilayah Pencadangan Negara), .means the area that reserved for certain commodities and conservation area to keep a balance between ecosystem and environment, therefore for commercialize this areas shall have approval from House of Representative.

Comparison Law 1/1967 and Law 4/2009:

Between Law 1/1967 and Law 4/2009 there are many substantial amendments, interalia are following:

Law 1/1967 on General Provisions on Mining

Law 4/2009 on Mineral and Coal Mining

Title of the Law:

General Provisions on Mining

Title of the Law:

Mineral and Coal Mining

Mineral Control:

mining activities are controlled by the Government

Mineral and Coal Control:

mineral and coal activities are convened by Government and Regional Government in the following classification:

for national interest is determine by President;

mineral and coal reserve area;

domestic interest is become a priority on mining activities;

data and information are owned by the Government;

management of mining activities are conducted by Government and Regional Government;

Management:

national policy and managerial

Management:

the Central Government is determined the working area (national policy and managerial);

Province (regional policy and managerial);

Regency/city (regional policy and managerial);

Mining Categorization:

Under Government Regulation No.27 years 1980 Concerning the Categorization of Mining the mining categorization are divided into:

– Strategies minerals;

– Vitals mineral;

– minerals that not categorize as a mineral type A and B above

Mining Categorization:

under Law 4/2009 the mining categorization is divided into following:

Mineral mining;

Radioactive mineral mining;

Metal mineral mining;

Non-metal mineral mining;

Rock mining.

Coal mining;

Mineral Categorization:

Under GR 27/ 1980, Mining Business Categorization are divided into:

– Strategies;

– Vital;

– Non Strategies and Non Vital;

Business Categorization:

– Radioactive mineral;

– metal mineral;

– Non-Metal mineral;

– Rock;

– coal;

License:

– Assignment;

– Indonesia Mining Right (Kuasa Pertambangan – KP);

– Regional Mining License Letter (Surat Izin Penambangan Daerah – SIPD);

– Small Scale License Letter (Surat Izin Penambangan Rakyat – SIPR);

– Indonesia Mining right (Kuasa Pertambangan – KK) or Coal Mining Exploitation Working Arrangements (Perjanjian Karya Pengusahaan Pertambangan Batubara- PKP2B);

Remarks:

Pursuant to the Circular Letter No. 03.E/31/DJB/2009 contract of work as mention above as mention above shall be adjusted at the latest 12 January 2010.

License:

– Mining Business permit (IUP) in General Mining Area;

– Small Scale Mining (IPR) in Small Scale Mining Area;

– Special Mining Business License (IUPK) in Special Mining Area;

Remarks:

Law No. 4/2009 is reputed to revive the spirit of nationalism. This regulation has revised the contract system and changed to licenses system. This new regulation is no longer utilizing contract system as prevailed under the previous regulation nevertheless the contract that has been signed between the Government and the Contractor is honored but such contract must be adjusted with Law No. 4/2009. Even so the Government has not confirmed yet whether there will be any renegotiation or not.

The purpose is to amend the government position so that the government is no longer under the position that is equal to the investors. Unlike the contract system, under Law No. 4/2009, the Government emphasizes its position and role as the regulator. This issue will be subsequently elaborated.

Procedures to Obtain License:

Submitting mining working area application

Procedure to obtain License:

– Auction procedure for metal and coal mineral;

– working area application for Non-metal and rocks mineral;

Business Actors:

– domestic investor (KP, SIPD, PKP2B);

– foreign investor (KK, PKP2B);

Business Actors:

– government institution;

– business entity and cooperative;

– Individually.

Area and Community Development:

No provisions regulated in this Law.

Area and Community Development:

– government or regional government obligations;

– obligation the IUP and IUPK holder;

Obligation of IUP Holder:

– Financial:

– KP pursuant to prevailing regulations;

– KK/PKP2B pursuant to the contract which has been signed.

– Environment (not specific)

– partnership (not specific)

– added value (regulated in contract)

– data and reports (not specific)

Obligations of IUP Holder:

– financial procedure pursuant to prevailing laws and regulations (tax, non-tax revenues, since the commercial stages for IUPK);

– environment;
reclamation (abandonment and restoration) for post mining

– Mining Techniques rules;

– added value obligation;

– data and reports obligation;

– Divestment obligation.

Domestic Market Obligation (“DMO”):

Under Law 1/1967 there is no obligation for the holder of mining area to conduct the domestic market obligations

Domestic Market Obligation (“DMO”):

In the event to support national sustainable development, one of the objectives of mineral and coal management is guarantying the availability of mineral and coal as raw material and/or energy resources for domestic necessity. For national interest, the Government after consulting with House of Representatives Republic of Indonesia may stipulate policy of priority of mineral and/or coal for domestic interest.

Reclamation:

Reclamation under law 1/1967 is regulated under

Reclamation:

In application of good technical principle, Mining Business License and Special Mining Business License must perform processing and monitoring of mining environment, including reclamation and post-mining activities. Every Mining Business License and Special Mining Business License holder must deliver reclamation and plan of post-mining activities when submitting application of Mining Business License for Operation and Production or Special Mining Business License for Operation and Production.

The performance of reclamation and post-mining activities shall be performed pursuant to the post-mining activities land allocation. Such allocation shall be stated in the land utilization agreement between Mining Business License or Special Mining Business License holder and the land title holder.

Mining Business License and Special Mining Business License holder must provide security fund of reclamation and post-mining activities. Minister, governor or regent/mayor pursuant to his authority may stipulate any third party to perform reclamation and post-mining activities by using such security fund if Mining Business License or Special Mining Business License holder does not perform the reclamation and post-mining activities pursuant to the agreed plan.

Processing and Smelting

Under Law 1/1967 processing and smelting is not regulated

Processing and Smelting

Mining Business License and Special Mining Business License holder must perform processing and smelting of mining products domestically. The objective is to increase and have optimal value of mining from product, availability of industrial raw material, manpower occlusion and state income improvement. The holder of IUP, IUPR and IUPK may have a joint with other business entity, cooperative or individual which has had Mining Business License or Special Mining Business License.

Land Allocation

Limitations of working area which can be obtain.

Land Allocation

– land border that can be obtain;

– before entering Operation Production stages holder of IUP/IUPK shall settle the land right obligations to the land title holders;

Development and Supervision

Centralize (for KP, KK and PKP2B)

Development and Supervision

– IUP and IUPK (Minister, Governor, Regent and major – pursuant to their authority);

– IPR (Regent/ Major).

Investigation

Not regulated

Investigation

Indonesia Police;
Civil Servant Officer.

Crime Provisions

– regulated however it doesn’t appropriate with current situation;

Crime Provisions

– regulated pursuant to the current situations and conditions;

– in the event the crime actions are conducted by legal entity, therefore the sanction and sentence is added 1/3.

Regards

Indonesia Investment Law