Mining rights and title

State control over mining rights

To what extent does the state control mining rights in your jurisdiction? Can those rights be granted to private parties and to what extent will they have title to minerals in the ground? Are there large areas where the mining rights are held privately or which belong to the owner of the surface rights? Is there a separate legal regime or process for third parties to obtain mining rights in those areas?

The Constitution stipulates that Indonesia’s natural resources are controlled by the state and must be used for the maximum benefit of the Indonesian people. Article 4, paragraph 2 of the Mining Law enables the central government to exercise control over mineral mining activities.

 

The government has the authority to grant eligible private parties mining permits (IUPs) to conduct mining activities. An IUP does not grant ownership of the minerals in the ground. Ownership of the minerals is transferred from the government to the IUP holder once the royalty payment has been settled. In accordance with this, land rights do not give the rights holder ownership of the minerals in the ground or the right to mine the minerals. Unless the land rights holder also holds a mining licence, it will not have the right to mine the minerals in the ground.

Publicly available information and data

What information and data are publicly available to private parties that wish to engage in exploration and other mining activities? Is there an agency, or securities commission regulating public companies, which collects mineral assessment reports from private parties? Must private parties file mineral assessment reports? Does the agency or the government conduct geoscience surveys, which become part of the database? Is the database available online?

At present, the Ministry of Energy and Mineral Resources (MEMR) maintains a publicly accessible information database containing information on, among other things, mining area maps, number of mining permit holders, and basic geospatial and thematic maps.  Such information and data are kept and maintained by the government. In support of the preparation of mining zones and the development of mining science and technology, the MEMR and governors may order state or regional research institutions to conduct surveys and research into mines.

 

IUP and IUPK holders, as well as contractors under the relevant contract of work (CoW), must submit reports on their mining business activities to the relevant central or regional government, including a mineral assessment.  Data possessed by regional governments must be shared with the central government for the national management of mining data. Additionally, the Mining Law also provides several provisions on the management and content of mining data for the preparation of mining areas and to promote development in science and technology.

Acquisition of rights by private parties

What mining rights may private parties acquire? How are these acquired? What obligations does the rights holder have? If exploration or reconnaissance licences are granted, does such tenure give the holder an automatic or preferential right to acquire a mining licence or more senior tenure? What are the requirements to convert to a mining licence?

Under the Mining Law, mining activities can be conducted only after obtaining an IUP, which may be granted by the MEMR. IUPs can be granted to:

  • business entities;
  • cooperatives; and
  • individuals.

 

The Mining Law Amendment changes the term ‘individuals’ to ‘proprietorship’. Unfortunately, it does not provide any definition of proprietorship or elucidate this change.

 

Under the Mining Law and its implementing regulations, IUPs are divided into exploration IUPs (IUPEs) and operation production IUPs (IUPOPs). An IUPE covers the general survey, exploration and feasibility study stages, while an IUPOP covers the construction, mining, processing and/or refining stages, development and/or utilisation, as well as transportation and sales.

 

An IUPK can also be granted by the MEMR to private entities. An IUPK holder is permitted to mine in a special mining business licence area that is located in a state reserve. However, state-owned and regional-owned enterprises have priority over private entities when it comes to obtaining an IUPK.

 

Before applying for an IUP, the applicant must participate in a tender process to obtain a mining business permit area (WIUP). There is an exemption for non-metal minerals and rock mining, whereby a WIUP and an IUP can be obtained through an application to the MEMR.

 

An IUPK will be granted after the mining company has secured a special mining permit area (WIUPK) through a competitive bid (for metal minerals and coal). State-owned and regional-owned enterprises have priority when it comes to obtaining a WIUPK. The MEMR can offer a WIUPK to private businesses by way of tender if no state-owned or regional-owned enterprises are interested in the offer or meet the financial, technical and environmental management and administrative requirements for the WIUPK. An IUPK may also be granted upon an application by a CoW holder whose CoW will expire, in the manner set out under MEMR Regulation 7/2020.

 

The Mining Law provides a guarantee to IUPE holders who have completed their exploration activity that they can obtain an IUPOP to continue their mining business activities. The holder of an IUPE or IUPK exploration may apply to the MEMR to upgrade the licence to an IUPOP or an operation production IUPK (IUPKOP).

 

Private companies that are engaged in mining-related activities (eg, mineral processing, refinery activities or mineral trading) are also subject to the licensing system under the Mining Law. Unlike the previous regime, under the Mining Law Amendment, any company that conducts mineral processing and refinery business activities must obtain an industrial licence issued by the Ministry of Industry. Therefore, any existing IUPOP specifically for processing and refining must be converted to an industrial business licence issued by the MOI by no later than 10 June 2021.

 

On the other hand, previously, any company engaging in mineral trading business activities had to obtain an IUPOP specifically for transportation and sales (IUPOPK-TS). However, under Article 35 of the Mining Law Amendment, the reference to IUPOPK-TS is replaced by transportation and sales business licence. Based on Article 104 of the Mining Law, processing and refinery activities can be done by IUP or IUPK holders integrated with their mining activities or by entering into a cooperation with other IUPOP or IUPKOP holders that own processing and refinery facilities, or with other companies that run processing and refinery activities that are not integrated with mining activities and that operate based on the licence issued in accordance with the laws and regulations on industry.

Renewal and transfer of mineral licences

What is the regime for the renewal and transfer of mineral licences?

Under the Mining Law, mining licence holders may apply to the MEMR to extend the initial term of the IUP that is due to expire. Under MEMR Regulation 7/2020, applications for the extension of an IUPOP or IUPKOP for metal minerals and certain non-metal minerals must be submitted at the earliest five years and at the latest one year before expiration. The extension application for an IUPOP for non-metal minerals or rocks can be submitted at the earliest two years and at the latest six months before expiration. The Mining Law provides that IUPE for metal minerals can be extended for one year for each extension upon fulfillment of certain requirements. In addition, the Mining Law provides guarantee that an IUPOP for minerals can be extended upon fulfillment of certain requirements.

 

Under MEMR Regulation 7/2020, the application to extend an IUPOP and IUPKOP must be submitted at least one year before expiration, and an application to extend an IUPOPK-TS must be submitted no later than one month before the expiration date. It should be noted, however, the Mining Law would require the adjustment of a mining business licence for production operation specifically for processing and refining (IUPOPK-PR) to an industrial business licence (IUI) within a year of the effective date of the amendment of Mining Law, namely 10 June 2020. This provision may address the concerns of smelter companies that had to obtain an IUPOPK-PR and an IUI to conduct processing and refining.

 

With respect to the transfer of a licence, article 93A of the Mining Law provides that an IUP and an IUPK may only be transferred to other parties if the initial holders have completed the exploration stage and have satisfied administrative, technical, environmental, and financial requirements, and subsequently obtain an approval from the MEMR. Article 7A of GR 23/2010 further allows the holder of an IUP to transfer the IUP to its subsidiary, provided that the IUP holder holds at least 51 per cent of shares in the transferee. Furthermore, article 7B of GR 23/2010 also allows state-owned enterprises to transfer their mining licences to their subsidiaries, provided that they hold at least 51 percent of shares in the transferee.

 

With respect to the change of shareholding composition of licence holders, article 64(1) of MEMR Regulation 7/2020 requires the prior approval of the MEMR or governor, as relevant. This approval must be obtained prior to the registration of the share transfer with the Ministry of Law and Human Rights. Under the Mining Law, a transfer of shares in IUP and IUPK holders is subject to obtaining MEMR approval, which would be granted upon the completion of the exploration stage and the satisfaction of administrative, technical, environment and financial requirements.

Duration of mining rights

What is the typical duration of mining rights? Is there a requirement to relinquish a portion of the mining rights to the government after a certain number of years?

Type of mining licence

Initial duration

Extensions

IUPE for metal minerals

8 years

Extendable, one year per extension

IUPE for certain non-metal minerals

7 years

N/A

 

IUPK exploration for metal minerals

8 years

Extendable, one year per extension

 

IUPE for non-metal minerals

3 years

N/A

 

IUPE for rocks

3 years

N/A

 

IUPOP for metal minerals

Maximum 20 years

Extendable twice, 10 years per extension

 

IUPOP for certain non-metal minerals

Maximum 20 years

Extendable twice, 10 years per extension

 

IUPOP for non-metal minerals

Maximum 10 years

Extendable twice, 5 years per extension

 

IUPOP for rocks

Maximum 5 years

Extendable twice, 5 years per extension

 

IUPOP that is integrated with processing

and refinery

 

30 years

Extendable, 10 years per extension

 

IUPK that is integrated with processing

and refinery

 

30 years

Extendable, 10 years per extension

 

IUPOPK-TS / Transportation and sales licence

5 years

Extendable, 5 years per extension

 

IUP for sales

Granted for a single sales activity

 

SIPB

Not specified, to be provided under the SIPB.

 

 

 

Based on GR 23/2010, IUPE and IUPKE holders are obliged to relinquish a certain portion of their exploration areas after a certain period of time, as specified below:

 

Type of mining commodity

Year of exploration

Maximum mining area

Metal minerals

4th year

50,000 hectares

8th year / at the end of Exploration stage

25,000 hectares

Coal

4th year

25,000 hectares

7th year / at the end of Exploration stage

15,000 hectares

Non-metal minerals

2nd year

12,500 hectares

3rd year / at the end of Exploration stage

5,000 hectares

Certain non-metal minerals

3rd year

12,500 hectares

 7th year / at the end of Exploration stage

5,000 hectares

Rocks

2nd year

2,500 hectares

3rd year / at the end of Exploration stage

1,000 hectares

Acquisition by domestic parties versus acquisition by foreign parties

Is there any distinction in law or practice between the mining rights that may be acquired by domestic parties and those that may be acquired by foreign parties?

Foreign parties may acquire mining rights in the form of an IUP or IUPK.  To acquire mining rights, foreign parties must set up a limited liability company that can be 100 per cent foreign-owned (PT PMA). Under the Company Law, at least two shareholders are required to set up a limited liability company. Alternatively, the foreign party may combine with a local investor to set up a PT PMA. However, once the PT PMA commences commercial production, it is obliged to gradually divest the shares owned by foreign shareholders after five years of production, so that by the 10th year of production 51 per cent of the shares are held by Indonesian participants. Both domestic and foreign parties are subject to the licensing regime under the Mining Law and its implementing regulations.

 

The central government shall stipulate a foreign ownership restriction, which may be applicable at the establishment of a mining company. This is in line with the government’s effort to strengthen the role of state-owned enterprises in the mineral and coal mining sector. Recently, the central government issued Presidential Regulation No. 10 of 2021 concerning Capital Investment Business Fields (PR 10/2021), which lists those business activities subject to foreign ownership restrictions. Under PR 10/2021, the mineral and coal mining sector is not subject to any foreign ownership restriction.

Protection of mining rights

How are mining rights protected? Are foreign arbitration awards in respect of domestic mining disputes freely enforceable in your jurisdiction?

Under article 154 of the Mining Law, any dispute arising from the implementation of an IUP or IUPR must be settled through a domestic court or arbitration. The enforcement of foreign arbitration awards in respect of domestic mining disputes may be relevant to mining activities based on a CoW, under which the parties may agree to submit to a foreign arbitration body to settle any dispute arising from the contract. A foreign arbitration award can be enforced after the District Court of Central Jakarta has recognised the award through the issuance of an exequatur. However, in practice, parties looking to enforce foreign arbitration awards face a number of challenges, and the judgments of Indonesian courts on enforcement often vary. At present, there are no reliable statistics on the number of foreign arbitral awards successfully enforced in Indonesia.

Surface rights

What types of surface rights may mining rights holders request and acquire? How are these rights acquired? Can surface rights holders oppose these requests or does the holder of the mineral tenure have priority over surface rights use?

Under the Mining Law, the right to mining concessions granted under IUPs does not include surface rights. However, mining licence holders can acquire rights over the land in their concession area for mining activities or the construction of facilities. The Mining Law requires a mining licence holder to settle with any land owners that have title over the land before conducting mining activities. Under the Agrarian Law (Law 5/1960 on the Basic Agrarian Law), the types of land rights that may be acquired by mining companies are the right to build and the right to use. These land rights must be registered with the National Land Agency. Land owners can oppose the request to acquire the land and negotiations between owners and mining companies over compensation can be long and contentious.

 

To ensure the smooth implementation of land acquisition for mining companies, the Mining Law provides that the central government shall settle land title issues for mining business activities by way of mediation in the absence of mutual agreement between the IUP or IUPK holder and the land owner. The extent to which the central government would conduct such settlement is to be further regulated under an implementing government regulation.

Participation of government and state agencies

Does the government or do state agencies have the right to participate in mining projects? Is there a local listing requirement for the project company?

The government has the right to apply for an IUP or IUPK through any state-owned or regional-owned company engaging in mining business activities. The Mining Law gives priority to state-owned and regional-owned companies seeking to obtain an IUPK.

 

State-owned and regional-owned companies also have the right to acquire shares in mining companies as a result of the implementation of divestment obligations of foreign investment mining companies.

 

There is no local listing requirement for the project company.

Government expropriation of licences

Are there provisions in law dealing with government expropriation of licences? What are the compensation provisions?

Law 25/2007 on Capital Investment, as amended by the Omnibus Law, prohibits the government from nationalising or expropriating the proprietary rights of investors, unless provided by law. If the government nationalises or expropriates the proprietary rights of investors, it must pay compensation according to the market value. Additionally, Indonesia is a party to the International Convention for the Settlement of Investment Disputes (ICSID), which confers a right to foreign investors to challenge government expropriation in an ICSID tribunal.

Protected areas

Are any areas designated as protected areas within your jurisdiction and which are off-limits to mineral exploration or mining, or specially regulated?

Under Law 41/1999 on Forestry, as amended by the Omnibus Law, mining activities are restricted in conservation forest areas. Mining activities are permitted only in production and protected forest areas. Production forest areas are open for both open-pit and underground mining, while protected forest areas are open only for underground mining. Recently, the government enacted Government Regulation 23/2021 on the Implementation of Forestry (GR 23/2021), which requires mining companies to obtain a Forest Utilization Permit from the Ministry of Environment and Forestry before conducting any mining activity in a forest area.  Mining activities within forest areas are subject to obligations, restrictions and prohibitions provided under GR 23/2021. These include the obligations to pay official fees and conduct environmental rehabilitation, and a prohibition on granting security rights over a forest utilisation area.

 

Mining activities are prohibited in nature and wildlife reserves under Law 5/1990 on the Conservation of Biological Resources and Ecosystems.

Law stated date

Correct on

Give the date on which the information above is accurate.

18 May 2020.