Mining rights and title in Indonesia

Mining rights and title

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 Law 4/2009 enables the government to exercise control over mineral mining activities.

The government has the authority to grant certain private parties 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.

What information and data are publicly available to private parties that wish to engage in exploration and other mining activities? Is there an agency 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, there is no information or data publicly available to private parties that wish to engage in exploration and other mining activities. 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 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.

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? What are the requirements to convert to a mining licence?

Under Law 4/2009, mining activities can be conducted only after obtaining an IUP, which may be granted by the MEMR or a governor, regent or mayor, according to their respective authority. IUPs can be granted to:

• business entities;
• cooperatives; and
• individuals.

IUPs are divided into IUPEs and IUPOPs. An IUPE covers the general survey, exploration and feasibility study stages, while an IUPOP covers the construction, mining, processing and refining stages, 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 organised by the MEMR or governor, depending on the location of the mining area to be tendered, in order to obtain a 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 or governor.

An IUPK will be granted after the mining company has secured a WIUPK. IUPK holders are permitted to carry out mining activities only in the WIUPK. State-owned and regional-owned enterprises have priority when it comes to obtaining a WIUPK. The MEMR can offer a WIUPK to private businesses if no state-owned or regional-owned enterprises are interested in the offer or meet the financial, technical and administrative requirements for the WIUPK.

Law 4/2009 provides a guarantee to IUPE holders 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 or governor, according to their respective authority, to upgrade the licence to an IUPOP or 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 Law 4/2009. Any company that conducts mineral processing and refinery business activities must obtain an IUPOPK-PR. Companies engaging in mineral trading business activities must obtain an IUPOPK-TS.

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

Under Law 4/2009, mining licence holders may apply to the relevant issuing authority (ie, the MEMR or governor, as relevant) to extend the initial term of the IUP that is due to expire. Under MEMR 11/2018, applications for the extension of an IUPOP or IUPKOP for metal minerals and certain non-metal minerals must be submitted at least one year before expiration. The extension application for an IUPOP for non-metal minerals or rocks can be submitted at least six months before expiration.

The application to extend an IUPOPK-PR 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.

Law 4/2009 prohibits the transfer of a mining licence to another party. However, GR 23/2010 (as amended) allows IUP or IUPK holders to transfer their mining licences to third parties provided that the IUP or IUPK holder holds at least 51% of the shares in the transferee.

What is the typical duration of mining rights?

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?

There is no distinction between the mining rights that may be acquired by domestic parties and those that may be acquired by foreign parties. Both domestic and foreign parties are subject to the licensing regime under Law 4/2009 and its implementing regulations.

At the incorporation stage, foreign parties are required to set up a limited liability company that can be 100% foreign-owned (PT PMA). Under the Company Law, there must be at least two shareholders to set up a limited liability company. Alternatively, the foreign investor may combine with a local investor to set up the PT PMA. However, once the PT PMA commences commercial production, it will be subject to the divestment obligation described in Section 48.

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

Under Article 154 of Law 4/2009, any dispute arising from the implementation of an IUP, 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.

What types of surface rights may mining rights holders request and acquire? How are these rights acquired? Can surface rights holders oppose these requests?

Under Law 4/2009, 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. Law 4/2009 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. 

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. MEMR 11/2008 gives priority to state-owned and regional-owned companies in obtaining a WIUPK. Law 4/2009 also gives priority to state-owned and regional-owned companies 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 their divestment obligations, as discussed in Section 48.

There is no a local listing requirement for the project company.

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

Law 25/2007 on Investment 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.

Are any areas designated as protected areas within your jurisdiction and which are off-limits or specially regulated?

Under Law 41/1999 on Forestry (as amended), 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. Mining companies must obtain a borrow-use permit from the Ministry of Environment and Forestry (MOEF) before conducting any mining activity in a forest area. Mining activities are prohibited in nature and wildlife reserves under Law 5/1990 on the Conservation of Biological Resources and Ecosystems.