Ministry of Energy and Mineral Resources (MEMR) Regulation 43 of 2015 on the Re-evaluation of Mineral and Coal Mining Business Licences (New Regulation) was issued on 30 December 2015.
It was a clear attempt by MEMR’s Directorate General of Minerals and Coal (DGMC) to increase scrutiny of certain extant mining licenses, with the aim of resolving licensing problems that have persisted since the New Mining Law1 was issued.
Specifically, the New Regulation aims to determine whether:
Mining Concessions (Kuasa-Kuasa Pertambangan, KPs) and Mining Business Licences (Izin-Izin Usaha Pertambangan, IUPs) converted from KPs (together, Subject Licences), were properly issued; and
Subject Licence-holders have otherwise complied with relevant regulations,
providing that Subject Licence-holders must have “Clean and Clear” certificates (CNCs);
introducing a re-evaluation procedure by which CNCs can be obtained; and
sanctioning Subject-Licence holders who fail to obtain CNCs.
Legal position before the New Regulation
Conversion of KPs to IUPs
The New Mining Law overhauled the licensing regime that prevailed under the Old Mining Law2 by requiring, amongst other things, that all extant KPs be converted to IUPs by (at least initially) 1 May 2010.3
A number of 2011 circular letters issued by the DGMC required all IUP-holders (but not KP-holders) to obtain CNCs, after having satisfied certain requirements and obtained certain recommendations from the relevant regent, mayor or governor.
The Regional Government Law4 changed the government agencies responsible for mining licensing from the relevant regent, mayor or governor to the DGMC and relevant governor by, for example, authorising the latter to issue CNCs with respect to IUPs.5
1 Law 4 of 2009 on Mineral and Coal Mining.
2 Law 11 of 1967 on Mining.
3 Sub-Articles 112(3)-(4)(a) of Government Regulation 23 of 2010 on Mineral and Coal Mining Business Activities (as variously amended) (GR 23/2010).
4 Law 23 of 2014 on Regional Government (as variously amended).
5 Article 4 of the New Regulation.
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Conversion of KPs to IUPs
The New Regulation indicates that a large number of KPs have still not been converted to IUPs. The New Regulation does not set a new deadline. However, its extensive CNC procedure should improve licensing and may result in the revocation of many non-compliant KPs and IUPs.
The New Regulation provides that CNCs must be obtained for all Subject Licences, but may only be issued if re-evaluation requirements are met.
However, if the Subject Licence-holder already has a CNC, that Subject-Licence holder must have submitted the CNC for verification to the DGMC by 29 March 2016. If the CNC was not submitted by this date, the Subject Licence must be re-evaluated and needs to comply with re-evaluation requirements.
Improved coordination between relevant government agencies
The New Regulation requires every regent and mayor to provide all Subject Licences (and associated documents) in their possession to either the DGMC or relevant governor.6
The DGMC will then re-evaluate all Subject Licences held by domestic investors (if the Subject Licence area traverses more than one province) or foreign investment companies (or PMA Companies), while the relevant governor will re-evaluate all remaining Subject Licences.
Re-evaluation requirements for IUPs converted from KPs
With respect to extant IUPs converted from KPs, the DGMC or the relevant governor (as the case may be) will only issue a CNC if, amongst other things:7
there is proof of an application having been made to convert the relevant KP to an IUP before that KP’s expiry;
the IUP’s term does not exceed the Mining Law’s maximum term for an IUP; and
the IUP’s coordinates conform with the coordinates stipulated in the IUP’s “area determination”.
Re-evaluation requirements for all Subject Licences
Further, with respect to all Subject Licences, including extant IUPs converted from KPs, the DGMC or the relevant governor (as the case may be) will only issue a CNC if (and may not convert an extant KP into an IUP unless), amongst other things:8
there is an “exploration report”;
there is a “feasibility study report” (unless a feasibility study has not yet been completed or the IUP has not yet reached the production stage);
all required payments, including any deadrent owed, have been made to the relevant government agency;
either an “area reservation” was issued or a KP application was made before the New Mining Law was issued on 12 January 2009;
the Subject Licence had already been upgraded to an exploitation KP from an exploration KP (unless the Subject Licence-holder is a cooperative (Cooperative Exemption));
6 Article 2 of the New Regulation.
7 Sub-Article 5(2) of the New Regulation.
8 Sub-Article 5(2) and Articles 7 and 8 of the New Regulation.
Client Update: Mining (April 2016) 3
the Subject Licence-holder has only one licence (unless the Subject Licence-holder is publicly-listed);
the Subject Licence’s area does not overlap with another licence’s area in which the same commodity is mined; and
all relevant environmental documents and permits have been obtained.
Sanctions for failure to obtain CNCs
The DGMC or relevant governor (as the case may be) may impose sanctions, ranging from written warnings to licence-revocation if the above requirements are not met (and a CNC cannot be obtained).
While seeking to increase compliance is sensible with respect to a key industry like mining, it is uncertain what effects the New Regulation will have on the viability of existing mining businesses. Indeed, further regulatory hurdles may not be welcome given prevailing commodity prices.
The New Regulation also suffers from:
failing to address the already-lapsed deadline for the conversion of KPs;
there being no discernible justification for the Cooperative Exemption; and
not requiring that re-evaluation results be publicly announced, which risks, for example, Subject Licence-holders which obtain CNCs being exposed to adverse action by government agencies or other third parties, particularly those not involved in the re-evaluation.
We will continue to monitor the implementation of the New Regulation and will issue further relevant updates as more information becomes available.