What is the nature and importance of the mining industry in your country?
Indonesia is a major player in the global mining industry. With its immense mineral reserves and production industry, Indonesia aims to develop an attractive investment climate that is favourable to the interests of both investors and the Indonesian government.
There are still challenges that demand the attention of the government, including falling commodity prices and the negative trend in the profitability of mining companies. However, there is good news. In the mineral mining sector, the processing and refinery industry has experienced rapid growth since the implementation of the domestic processing obligation that prohibits the export of unprocessed minerals.
However, improvements to the regulatory regime for the mining sector and to the Indonesian legal system in general are needed. There are several implementing regulations and policies that are not favourable to the interests of investors. The government faces the difficult task of balancing the interests of all stakeholders through legal instruments and has made a conscious effort to simplify bureaucracy in the mining sector to reinforce Indonesia’s position as a competitive destination for mining investments. Legal certainty is one of the most important elements to reduce investment risk and is key to spur new investments in the mining sector.Target minerals
What are the target minerals?
The target minerals in Indonesia are gold, copper, bauxite, tin, silver and, in particular, nickel, which the significant increase in the use of battery technology has stimulated the need for. As one of the largest producers of nickel in the world, Indonesia has benefited from an increase in investment in nickel mining. This includes a $4 billion lithium battery project in Morowali, on the island of Sulawesi.Regions
Which regions are most active?
The most active regions for coal mining are:
- South Sumatra;
- Central Kalimantan; and
- East Kalimantan.
The most active regions for mineral mining are:
- Bangka Belitung Islands;
- West Kalimantan;
- Central Sulawesi;
- Southeast Sulawesi;
- Maluku; and
Legal and regulatory structureBasis of legal system
Is the legal system civil or common law-based?
Indonesia has a civil law system.Regulation
How is the mining industry regulated?
The mining industry in Indonesia is regulated by way of mining laws. The main regulation is Law 4/2009 on Coal and Mineral Mining, which is further implemented by various regulations and decrees issued by:
- the central government;
- the Ministry of Energy and Mineral Resources (MEMR); and
- regional governments at the provincial and regency or municipal levels.
Law 4/2009, which revoked Law 11/1967 on the General Provisions of Mining, introduced a licensing system for mining business activities. Under the previous mining law, mining business activities could be conducted based on:
- a mining authority for domestic investment; and
- a contract of work (CoW) for foreign investment.
Law 4/2009 was introduced with the aim of eliminating the different treatment of domestic and foreign investment in the industry.
There are three types of mining permit under Law 4/2009, namely:
- a mining permit (IUP);
- a small-scale mining permit (IPR); and
- a special mining permit (IUPK).
To reflect the different stages of mining activity, IUPs and IUPKs are divided into:
- IUP exploration (IUPE) and IUP operation production (IUPOP); and
- IUPK exploration and IUPK operation production (IUPKOP).
Unlike the licensing system, a CoW is a contract entered into by a foreign investor with the government as the basis for the investor to carry out mineral mining business activities. When Law 4/2009 came into force, all mining authorities had to be converted into IUPs, while CoWs are honoured until their expiration.
The MEMR, governors, regents and mayors, according to their respective authority, are authorised to issue IUPs, IUPKs and IPRs.
An IUP is granted for mining activities undertaken in a mining business permit area (WIUP), while an IUPK is granted for activities carried out in a special mining permit area (WIUPK).
For further details on the types of IUP under Law 4/2009, see "What mining rights may private parties acquire?".
What are the principal laws that regulate the mining industry? What are the principal regulatory bodies that administer those laws? Were there any major amendments in the past year?
In addition to the Constitution, the principal law that regulates the mining industry is Law 4/2009.
The MEMR is the principal regulatory body that administers the implementation of mining laws and regulations. However, since the mining industry is closely tied to other sectors (eg, forestry and the environment), other ministries govern matters that fall under their respective authorities. Mining companies in Indonesia must comply with regulations issued by ministries other than the MEMR, to the relevant extent.
Law 4/2009 is further implemented by various governmental regulations, including:
- Government Regulation (GR) 22/2010 on Mining Areas;
- GR 23/2010 on the Implementation of Coal and Mineral Mining Business Activities, as amended by:
- GR 24/2012;
- GR 1/2014;
- GR 77/2014;
- GR 1/2017; and
- GR 8/2018;
- GR 55/2010 on the Development and Monitoring of the Implementation of Coal and Mineral Mining Business Activities;
- GR 78/2010 on Reclamation and Post-mining Activities; and
- GR 9/2012 on the Types and Tariffs for Non-tax State Revenues Applicable to the Ministry of Energy and Mineral Resources.
These regulations are further implemented by various ministerial regulations issued by the MEMR, including:
- MEMR Regulation 43/2015 on the Procedure for the Evaluation of the Issuance of Coal and Mineral Business Licences;
- MEMR Regulation 7/2017 on the Procedure for Determining Coal and Mineral Benchmark Prices, as amended by MEMR Regulation 44/2017 and MEMR Regulation 19/2018;
- MEMR Regulation 9/2017 on the Divestment Procedure and Price Determination Mechanism for the Divestment of Shares in Coal and Mineral Mining Businesses, as amended by MEMR Regulation 43/2018;
- MEMR Regulation 48/2017 on the Supervision of Business Activities in the Energy and Mineral Resources Sector;
- MEMR Regulation 11/2018 on the Procedure for the Granting of Areas, Licensing and Reporting of Coal and Mineral Mining Business Activities, as amended by MEMR Regulation 22/2018 and MEMR Regulation 51/2018;
- MEMR Regulation 25/2018 on Coal and Mineral Mining Business, as amended by MEMR Regulation 50/2018; and
- MEMR Regulation 26/2018 on the Implementation of Good Mining Principles and the Supervision of Coal and Mineral Mining.
Of these regulations, several that were issued in 2018 are particularly important. GR 8/2018, which is the fifth amendment of GR 23/2010, confirms that the MEMR is authorised to determine the sale price of coal for the fulfilment of domestic market obligations.
MEMR 11/2018 regulates matters relating to, among other things:
- determining and granting WIUPs and WIUPKs for mineral mining;
- information systems on mining areas;
- the procedure for granting mining permits and mining service permits;
- the rights and obligations of mining permit holders;
- work plans and budgets; and
- periodical reporting requirements.
MEMR 25/2018 generally regulates the performance of activities under:
- an IUP;
- an IUPK;
- an IUPOP specifically for processing and refining (IUPOPK-PR); and
- an IUPOP specifically for transportation and sales (IUPOPK-TS).
MEMR 25/2018 also contains provisions on:
- non-tax state revenue;
- the purchase of capital goods; and
- coal and mineral benchmark prices.
What classification system does the mining industry use for reporting mineral resources and mineral reserves?
Directorate General of Mineral and Coal Regulation 569.K/30/DJB/2015 on the Application of the Indonesian National Standard and the Committee Code for Indonesian Mineral Reserves in Exploration Outcome Report, Natural Reserve Estimates, and Mineral and Coal Reserve Estimates requires all IUP and CoW holders to prepare reports on the outcome of:
- exploration activities;
- resource estimates; and
- coal or mineral reserve estimates.
These reports must comply with the Indonesian National Standard and the Committee Code for Indonesian Mineral Reserves.
Mining rights and titleState 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 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.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 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.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? 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
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.Renewal and transfer of mineral licences
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.Duration of mining rights
What is the typical duration of mining rights?
|Type of mining licence||Initial duration||Extensions|
|IUPE for metal minerals||Maximum 8 years||N/A|
|IUPE for certain non-metal minerals||Maximum 7 years||N/A|
|IUPK exploration for metal minerals||Maximum 8 years||N/A|
|IUPE for non-metal minerals||Maximum 3 years||N/A|
|IUPE for rocks||Maximum 3 years||N/A|
|IUPOP for metal minerals||Maximum 20 years||Extendable twice, up to 10 years per extension|
|IUPOP for certain non-metal minerals||Maximum 20 years||Extendable twice, up to 10 years per extension|
|IUPK operation production for metal minerals||Maximum 20 years||Extendable twice, up to 10 years per extension|
|IUPOP for non-metal minerals||Maximum 10 years||Extendable twice, up to 5 years per extension|
|IUPOP for rocks||Maximum 5 years||Extendable twice, up to 5 years per extension|
|IUPOPK-PR||30 years||Extendable 20 years each extension, with no limit on number of extensions|
|IUPOPK-TS||5 years||Extendable 5 years each extension, with no limit on number of extensions|
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.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 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.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?
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.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. 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.Government expropriation of licences
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.Protected areas
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.
Duties, royalties and taxesDuties, royalties and taxes payable by private parties
What duties, royalties and taxes are payable by private parties carrying on mining activities? Are these revenue-based or profit-based?
Law 4/2009 obliges IUP and IUPK holders to pay dead rent and royalties. GR 9/2012 requires IUP and IUPK holders to pay dead rent of $2 per hectare per year for the exploration stage and $4 per hectare per year for the operation production stage. IUP and IUPK holders must pay royalties ranging from 1.5% to 6.5% of the sale price of the minerals produced per year. Dead rent and royalties payable by CoW holders are stipulated in the relevant contract.
IUP and IUPK holders are generally subject to:
- income tax at the rate of 25% of net taxable profit; and
- value added tax (VAT) of 10% for the delivery of goods or services.
The tax rate for CoW holders is stipulated in the relevant contract.Tax advantages and incentives
What tax advantages and incentives are available to private parties carrying on mining activities?
GR 18/2015 on Income Tax Facilities for Investment in Certain Business Sectors and/or Located in Certain Areas (as amended) provides that tax allowances for the mining sector are available subject to the fulfilment of certain criteria. Tax allowances include:
- a reduction of net taxable income up to 30% of the amount that has been invested, in the form of tangible fixed assets including land, prorated at 5% for six years calculated from the commencement of commercial operation;
- an accelerated depreciation of tangible assets and amortisation of intangible assets;
- withholding tax on the dividends that are paid to non-residents at the rate of 10%; and
- an increased loss carryforward period from five years to 10 years.
These allowances are generally applicable to mining activities completed outside Java.Tax stablisation
Does any legislation provide for tax stabilisation or are there tax stabilisation agreements in force?
No, there are no tax stabilisation legislation or tax stabilisation agreements in force.Carried interest
Is the government entitled to a carried interest, or a free carried interest in mining projects?
No, the government is not entitled to a carried interest or a free carried interest in mining projects.Transfer taxes and capital gains
Are there any transfer taxes or capital gains imposed regarding the transfer of licences?
Under Law 4/2009, a mining licence is not transferrable to another party and there is no provision on transfer taxes or capital gains resulting from the transfer of licences.Distinction between domestic parties and foreign parties
Is there any distinction between the duties, royalties and taxes payable by domestic parties and those payable by foreign parties?
There is no distinction between the duties, royalties and taxes payable by domestic parties and those payable by foreign investment companies. IUP and IUPK holders are subject to dead rent and royalties at rates stipulated by GR 9/2012. In regard to taxes, IUP and IUPK holders are subject to the applicable laws and regulations. For CoW holders, the amount of duties, royalties and taxes payable to the government vary depending on the amounts agreed in the relevant contract.
Business structuresPrincipal business structures
What are the principal business structures used by private parties carrying on mining activities?
Most private parties engaging in mining business activities do so in the form of a limited liability company. In respect of foreign investment, Law 25/2007 requires a joint venture company to be established in the form of a limited liability company.Local entity requirement
Is there a requirement that a local entity be a party to the transaction?
As stated above, a foreign investment company carrying out mining exploration activities can be 100% foreign-owned at its establishment, subject to a divestment requirement as stipulated in Law 4/2009. GR 23/2010 provides that IUPOP and IUPK holders must begin to divest the shares owned by foreign shareholders after five years of production, so that by the 10th year of production 51% of the shares are held by Indonesian participants.Bilateral investment and tax treaties
Are there jurisdictions with favourable bilateral investment treaties or tax treaties with your jurisdiction through which foreign entities will commonly structure their operations in your jurisdiction?
An important element of a bilateral or international investment treaty is the most-favoured-nation clause, which ensures that the parties to the treaty will provide treatment that is no less favourable than the treatment they provide under other treaties in areas covered by the clause. The government has entered into bilateral investment treaties with many countries and the investment structure or cooperation arrangement between the government and its partners may vary from one treaty to another. Nevertheless, the government has entered into a number of bilateral investment treaties with the countries of origin of mining investors in Indonesia (eg, India, Australia and South Korea) and these generally contain similar provisions.
FinancingPrincipal sources of financing
What are the principal sources of financing available to private parties carrying on mining activities? What role does the domestic public securities market play in financing the mining industry?
Generally, there are two financing methods, namely: equity and debt financing. Equity financing by way of capital participation allows investors to participate in the company’s capitalisation. Listed companies can also attract funds from the public through a stock exchange. Debt instruments are another option for mining companies, and bank loans or bonds are the most common debt instruments used by mining companies to obtain financing. Lenders or bondholders usually require mining companies to provide security over their assets or a guarantee to secure the repayment of the loans or bonds. However, with the challenges facing the mining industry and the volatility of commodity prices, it has become more difficult for mining companies to secure financing from investors and lenders.Direct financing from government or major pension funds
Does the government, its agencies or major pension funds provide direct financing to mining projects?
Other than financing the mining projects of state-owned and regional-owned companies by way of capital participation, the government does not provide direct financing to mining projects.
However, in 2018 through the Ministry of State-Owned Enterprise, the government established state-owned private investment firm PT Bandha Investasi Indonesia, which aims to provide funding for infrastructure projects in Indonesia.Security regime
Please describe the regime for taking security over mining interests.
Mining licences cannot be encumbered by any security rights. The assets of mining companies can be secured typically by way of mortgage, pledge or fiduciary security rights, depending on the type of secured object.
What restrictions are imposed on the importation of machinery and equipment or services required in connection with exploration and extraction?
There is no restriction on such imports. Subject to the relevant CoW or coal CoW, mining licence holders may apply for import duty and VAT exemptions for certain machinery and equipment used in the development and expansion stages of their business activities. However, there is a restriction on the transfer, re-export or destruction of machinery and equipment imported by mining licence holders with such import duty and VAT exemption. Failure to adhere to the restrictions on import duty and VAT exemptions may result in the forced payment of import duty and VAT, as well as penalties.Standard conditions and agreements
Which standard conditions and agreements covering equipment supplies are used in your jurisdiction?
There are no standard conditions and agreements covering equipment supplies used in Indonesia. Parties to equipment supply agreements typically choose an arbitration forum to settle disputes relating to the agreement.Mineral restrictions
What restrictions are imposed on the processing, export or sale of minerals? Are there any export quotas, licensing or other mechanisms that prevent producers from freely exporting their production?
Mining companies must refine or process mining products domestically. Mining companies can construct their own smelter or enter a cooperation with other mining or smelter companies through the sale and purchase of ore or concentrate, or the joint construction of a smelter, subject to the approval of the MEMR or governor (as applicable). Mining products may be exported only after the company:
- satisfies the minimum level of processing and/or refining;
- obtains an export recommendation from the MEMR;
- obtains export approval from the Ministry of Trade; and
- pays export duties.
MEMR 25/2018 provides the minimum level of processing and refining for different mining products.
Pursuant to Article 17 of MEMR 25/2018, until 11 January 2022, metallic minerals such as copper, iron ore or sand, manganese, lead, zinc, ilmenite and titanium can be exported, provided that they have been processed in accordance with the minimum processing requirement under MEMR 25/2018.
Other minerals such as nickel, bauxite, tin, gold, silver and chromium must be refined according to the minimum refinery requirements under MEMR 25/2018 before being exported.
The obligation to satisfy the minimum refinery or processing requirements does not apply for minerals that are due to be used domestically or for R&D purposes through the delivery of samples to other countries.
Article 32 of MEMR 25/2018 enables the MEMR to control the sale of minerals by stipulating the amount and type of:
- minerals for the fulfilment of domestic needs (domestic market obligation); and
- minerals that can be sold abroad.
What restrictions are imposed on the import of funds for exploration and extraction or the use of the proceeds from the export or sale of minerals?
Bank Indonesia Regulation 17/3/PBI/2015 on the Mandatory Use of Rupiah stipulates that parties must use rupiah in transactions conducted in Indonesia. However, the regulation also stipulates that certain transactions are exempt from this obligation. In addition, under Law 25/2007 on Capital Investment, investors can transfer or repatriate funds in a foreign currency in certain circumstances.
Article 18 of Bank Indonesia Regulation 18/19/PBI/2016 on Foreign Currency Transactions against Rupiah between Banks and Foreign Parties further provides that Indonesian banks are prohibited from transferring rupiah to any offshore account. As a result, amounts in rupiah must be converted into another currency before being transferred offshore. With regard to conversion, Article 5, paragraph 1 of Bank Indonesia Regulation 18/19/2016 requires that any purchase of foreign currency exceeding $25,000 must have an underlying transaction as evidenced by supporting documents.
EnvironmentPrincipal applicable environmental laws
What are the principal environmental laws applicable to the mining industry? What are the principal regulatory bodies that administer those laws?
The principal environmental laws applicable to the mining industry are:
- Law 32/2009 on Environmental Protection and Management and its implementing regulations;
- GR 82/2001 on Water Quality Management and Water Pollution Control;
- GR 78/2010 on Reclamation and Post-mining;
- GR 27/2012 on Environmental Permits;
- GR 101/2014 on the Management of Hazardous Materials and Toxic Waste;
- MEMR Regulation 26/2018 on the Implementation of Good Mining Principles and Supervision of Mineral and Coal Mining; and
- MEMR Decree 1827K/30/MEM/2018 on the Guidelines for the Implementation of Good Mining Technique Principles.
The principal regulatory bodies that administer these laws are:
- the MOEF;
- the authority that issued the mining licence; and
- the relevant regional government.
What is the environmental review and permitting process for a mining project? How long does it normally take to obtain the necessary permits?
Under the Environmental Law, depending on the activities, required environmental permits generally consist of:
- an environmental impact analysis (AMDAL);
- environmental management effort and environmental monitoring effort (UKL-UPL);
- an environment management and monitoring capability statement (SPPL); and
- an environmental licence.
A UKL-UPL is required for mining activities at the exploration stage and an AMDAL is required for mining activities at the operation production stage. Mining activities also require an environmental licence regardless of the stage.
Before preparing any environmental permit, the mining company must ensure that the intended mining location complies with the applicable spatial layout plan; otherwise, the AMDAL or UKL-UPL document cannot be assessed by the authorities.
A mining company can obtain a recommendation for its UKL-UPL from the relevant authority by submitting a statement letter attesting to its commitment to implement the UKL-UPL along with the completed UKL-UPL form to the chair of the regency or city environmental agency, the chair of the provincial environmental agency or the deputy of the MOEF, as relevant. The relevant authority will assess the UKL-UPL and issue a UKL-UPL recommendation within 14 business days of the date of receipt of the UKL-UPL.
An AMDAL document includes:
- terms of reference;
- an AMDAL; and
- an environmental management plan/environmental monitoring plan (RKL/RPL).
Before preparing the AMDAL, the mining company must announce its project in a local or national newspaper, in accordance with the authority of the AMDAL evaluator. It must also post the information on an announcement board or through another medium that is easily accessible by the affected community (eg, brochures, pamphlets, television, websites, radio or the announcement board at the local environmental office). The mining company must also conduct a public consultation to enable community members to comment on the planned project. The mining company must then prepare the terms of reference, which must follow the guidelines provided by the MOEF, and submit these for evaluation by the AMDAL Evaluation Commission to the minister, governor or regent (as relevant), depending on the location of the planned business or activity. Once the terms of reference have been approved, the mining company must prepare an AMDAL and RKL/RPL documents, along with a request for an environmental licence, for submission to the AMDAL Evaluation Commission at the relevant authority. Evaluation of the documents should be completed within 75 days, and if no revision is necessary, the relevant authority will stipulate an environmental feasibility decision within 10 days based on the recommendation of the AMDAL Evaluation Commission, which serves as approval of the AMDAL documents.
Approval of the AMDAL or UKL-UPL documents serves as the basis for which the relevant authority will issue an environmental permit, which is done simultaneously with the issuance of the environmental feasibility decision or UKL-UPL recommendation.Closure and remediation process
What is the closure and remediation process for a mining project? What performance bonds, guarantees and other financial assurances are required?
Under GR 78/2010 and MEMR Regulation 26/2018, CoW, IUP and IUPK holders are subject to reclamation and post-mining obligations at both the exploration and exploitation stages.
As part of their reclamation and post-mining obligations, IUP exploration and IUPK holders must:
- submit a reclamation plan for the exploration stage to the mining licence issuing authority;
- provide a reclamation and post-mining guarantee, the amount of which will be subject to the approval of the appropriate issuing authority;
- carry out the reclamation plan; and
- submit a reclamation plan for the operation production stage and a post-mining plan when applying for an IUPOP or IUPKOP.
IUPOP or IUPKOP holders must:
- provide a reclamation and post-mining guarantee, the amount of which will be subject to approval of the appropriate issuing authority;
- submit periodic reclamation plans for the operation production stage;
- carry out operation production stage and post-mining reclamation; and
- report the implementation of these activities to the appropriate issuing authority.
As part of their reclamation and post-mining obligations, IUPOPK-PR holders must:
- submit a post-operation plan to the appropriate issuing authority;
- carry out post-operation environmental and ecosystem repair, restoration and management activities; and
- report the implementation of these post-operation activities to the appropriate issuing authority.
What are the restrictions for building tailings or waste dams?
Construction of tailings or waste dams is governed under, among others, Minister of Public Works and Housing (MOPWH) Regulation 27/PRT/M/2015 on Dams. The construction of a tailings or waste dam requires:
- a water resources utilisation licence from the MOPWH, local governor or local regent or mayor (as applicable), unless no water resource is utilised;
- a principle licence from the MOPWH, local governor or local regent or mayor, depending on the construction location, after obtaining a technical recommendation from the MOEF and MEMR; and
- a construction licence from the MOPWH.
MOPWH Regulation 27/2015 imposes a general obligation to use workers with the relevant expertise and skills, and certain roles may require a certificate of expertise.
MOPWH Regulation 27/2015 does not refer to the responsibilities of mining companies with regard to rescuing people in case of a dam failure. The local community has the right to file a complaint or lawsuit against a mining company for any damages due to the construction and management of a dam. In practice, the mining company may be required to provide compensation to the local community in the event of a dam failure.
Health & safety, and labour issuesPrincipal health and safety, and labour laws
What are the principal health and safety, and labour laws applicable to the mining industry? What are the principal regulatory bodies that administer those laws?
The principal health and safety and labour laws applicable to the mining industry are:
- Law 1/1970 on Work Safety;
- Law 13/2013 on Manpower; and
- MEMR Regulation 26/2018.
The principal regulatory bodies that administer those laws are:
- the Ministry of Manpower (MoM);
- the MEMR as the issuing authority of the mining licence; and
- the relevant regional government.
Management and recycling of mining waste
What are the rules related to management and recycling of mining waste products? Who has title and the right to explore and exploit mining waste products in tailings ponds and waste piles?
The management and recycling of mining waste products must be done by the mining companies that produce the waste products, as regulated by GR 101/2014. GR 101/2014 further stipulates that companies that produce toxic or hazardous waste must manage, reduce, store, collect and process their waste products. GR 101/2014 does not specifically address mining waste products in tailing ponds and waste piles. However, it provides that mining companies that produce mining waste products must utilise those products or cooperate with a third party to utilise them. Utilisation of mining waste products includes reusing, recycling or recovering the products, as contemplated in MOEFA Regulation 2/2018 on the Utilisation of Toxic and Dangerous Waste.Use of domestic and foreign employees
What restrictions and limitations are imposed on the use of domestic and foreign employees in connection with mining activities?
There is no restriction or limitation imposed on the use of domestic and foreign employees specific to mining activities. As a general rule, the employment of domestic workers is subject to various restrictions, including:
- minimum wage;
- the execution of a collective labour agreement or employment agreement in the Indonesian language (as applicable);
- enrolment in the social insurance programme;
- filing of mandatory worker reports; and
- severance payment on termination.
The employment of foreign nationals is also subject to various restrictions, including:
- the MoM’s list of roles closed to foreign employees;
- completion of a foreign worker utilisation plan;
- notification to the MoM; and
- a work permit.
Social and community issuesCommunity engagement and CSR
What are the principal community engagement or CSR laws applicable to the mining industry? What are the principal regulatory bodies that administer those laws?
Although not specific to the mining industry, the Company Law, Law 4/2009 and GR 47/2012 on Corporate Social and Environment Responsibility provide certain corporate social and environmental responsibilities for companies. More specifically, under Article 108(1) of Law 4/2009 and Article 106 of GR 23/2010, mining companies must implement community development and empowerment programmes as part of their annual work and budget plans, which must be approved by the MEMR, governor, regent or mayor, as relevant. The realisation of community development and empowerment programmes must be reported semi-annually to the relevant authority. Companies that fail to comply with these requirements will be subject to administrative penalties. For CoW holders, the relevant CoW will contain provisions on community development.Rights of aboriginal, indigenous or disadvantaged peoples
How do the rights of aboriginal, indigenous or currently or previously disadvantaged peoples affect the acquisition or exercise of mining rights?
The rights of aboriginal, indigenous or currently or previously disadvantaged peoples are acknowledged only through the local community’s right to obtain a people’s mining right licence. This is a licence to conduct mining activities in a people’s mining area that is granted to the local community, which may comprise individuals, community groups or cooperatives.International law
What international treaties, conventions or protocols relating to CSR issues are applicable in your jurisdiction?
Indonesia is not currently a party to any international conventions or treaties related to CSR issues.
Anti-bribery and corrupt practicesLocal legislation
Describe any local legislation governing anti-bribery and corrupt practices.
Provisions regarding anti-bribery and corrupt practices can be found in, among others:
- Law 1/1946 on the Indonesian Criminal Code;
- Law 11/1980 on Criminal Acts of Bribery;
- Law28/1999 on State Organisers that are Clean and Free from Corruption, Collusion and Nepotism;
- Law 31/1999 on the Eradication of Criminal Acts of Corruption, as amended by Law 20/2001;
- Law 30/2002 on the Commission for the Eradication of Criminal Acts of Corruption;
- Law 7/2006 on the Ratification of the 2003 United Nations Convention Against Corruption;
- Law 46/2009 on the Court for Criminal Acts of Corruption; and
- GR 53/2010 on Civil Service Discipline.
Laws 31/1999 and 11/1980 govern acts of corruption involving government officials or causing losses to state finances only. Corruption in the private sector, which involves only companies or private individuals, and which does not involve a government official or relate to state finances, is not subject to these laws. The scope of ‘private corruption’ therefore falls under the ambit of the Criminal Code and, in practice, perpetrators are reported as committing a crime of embezzlement or fraud.Foreign legislation
Do companies in your country pay particular attention to any foreign legislation governing anti-bribery and foreign corrupt practices in your jurisdiction?
Only foreign companies operating in Indonesia are subject to foreign legislation governing anti-bribery and foreign corrupt practices with extraterritorial applicability (eg, the US Foreign Corrupt Practices Act and the UK Anti-bribery Act).Disclosure of payments by resource companies
Has your jurisdiction enacted legislation or adopted international best practices regarding disclosure of payments by resource companies to government entities in accordance with the Extractive Industries Transparency Initiative (EITI) Standard?
Presidential Regulation 26/2010 on the Transparency of State and Regional Revenue Originating from Extractive Industry has established an extractive industry transparency team as a first step toward implementing the EITI Standard. In 2018 the government issued:
- Presidential Regulation 13 on the Implementation of Know-Your-Beneficial-Owner by Corporations in the Context of Preventing and Suppressing Money Laundering and Financing of Terrorism; and
- MEMR Decree 1796K/30/MEM/2018 on Implementing Guidance for the Application, Evaluation and Issuance of Licences in the Field of Mineral and Coal Mining.
These regulations require corporations to disclose information on beneficial ownership, which is one of the requirements of EITI.
Foreign investmentForeign ownership restrictions
Are there any foreign ownership restrictions in your jurisdiction relevant to the mining industry?
A company engaging in mining business activities may be established with 100% foreign investment, although it will be subject to a divestment requirement. GR 23/2010 provides that IUP-OP and IUPK holders are obliged to gradually divest the shares owned by foreign shareholders after five years of production, so that by the 10th year of production 51% of the shares are held by Indonesian participants (as defined below). The divestment obligation does not apply to holders of IUP-OPs for processing or refining. The minimum gradual divestment is as follows:
|Year after commercial production||Required divestment by mining company|
During divestment, shares will be offered to (in order of priority):
- the central government of Indonesia (through the MEMR);
- regional governments (provincial governments or municipality or regency governments);
- state-owned enterprises;
- regional government-owned enterprises; and
- Indonesian private business entities (in the form of limited liability companies owned entirely by Indonesian investors, so-called ‘Indonesian participants’).
Shares must be offered before 90 calendar days in the fifth year after the issuance of the IUP for the mining stage. Divestment procedures are further regulated by MEMR 9/2017. IUP holders that fail to comply with the divestment obligation will be subject to administrative penalties.
CoW holders that were in production for less than five years before the promulgation of GR 23/2010 are subject to the same divestment requirements. CoW holders that were in production for at least five years before the promulgation of GR 23/2010, as amended, must divest:
- 20% within one year after the promulgation of GR 77/2014 (ie, 15 October 2015); and
- the applicable percentage in accordance with the above divestment table within five years after the promulgation of GR 77/2014.
GR 77/2014 does not provide the consequences of non-compliance with these divestment obligations by CoW companies. However, MEMR Regulation 9/2017 provides that CoW holders must comply with the divestment requirements set forth in this regulation. MEMR Regulation 25/2018, as amended, also permits CoW and coal CoW holders to divest at least 51% of their foreign shareholding to Indonesian participants once in the 10th year after production.
International treatiesApplicable international treaties
What international treaties apply to the mining industry or an investment in the mining industry?
Indonesia is not a party to any international (multilateral or bilateral) mining treaties. The international treaties applicable to investment in the mining industry are:
- the Convention on the Settlement of Investment Disputes between States and Nationals of Other States;
- double taxation treaties; and
- free trade agreements.
Update and trendsRecent developments
What were the biggest mining news events over the past year in your jurisdiction and what were the implications? What are the current trends and developments in 2019 in your jurisdiction's mining industry (legislation, major cases, significant transactions)?
Commodity prices in Indonesia continue to rise despite price volatility over the past year. Although commodity prices show a positive trend, there has been no corresponding growth in the financing of mining projects in Indonesia. Financiers appear to be waiting for commodity prices to stabilise to ensure the ability of mining companies to repay financing facilities.
Domestic mineral processing requirements have helped the Indonesian smelter industry to grow – although not as quickly as expected. However, the government hopes that the construction of at least 57 smelters will be completed by 2022. In terms of mineral production, following the plan to develop the lithium battery industry in Morowali, Central Sulawesi Province, the government expects nickel production to increase to meet demand.
Divestment has become one of the government’s biggest concerns. Previously, mineral reserves were not taken into account in calculating share prices for divestments, but mining companies can now take into account mineral reserves that can be mined during the lifespan of the IUPOP or IUPKOP. The government has also introduced new methods for calculating fair market value for divested shares, namely:
- discounted cash flow over the economic benefits for the period of the divestment until the expiry of the IUPOP or IUPKOP; and
- market data benchmarking.
The government will need to continue working on mining regulations to balance its interests with those of investors. Given the fluctuations in commodity prices and global market demands, the government will need to create a more conducive investment climate to give investors confidence in Indonesia’s mining industry.