In 2021, the government introduced Regulation of the Government No. 96 of 2021 on the Implementation of Mineral and Coal-Mining Business Activities  (“Regulation 96/2021”),[1] which is currently serving as the applicable regulatory framework for the implementation of mineral and coal-mining business activities following the introduction of the latest amendment to Law No. 4 of 2009 on Minerals and Coal Mining through the issuance of Regulation of the Government in Lieu of Law No. 2 of 2022 on Job Creation (collectively referred to as “Law 4/2009”).[2]

However, in order to ensure deregulation and debureaucratization in the mineral and coal mining sector, as well as to provide further legal certainty to holders of special mining business licenses (Izin Usaha Pertambangan Khusus – “IUPK”) for production operations, the government is currently working on a new Draft Regulation (“Draft Regulation”) which, if it ultimately comes into force, will become an amendment to Regulation 96/2021.[3] Broadly speaking, the Draft Regulation encompasses three new additional provisions and amends 13 provisions that originally featured under the framework of Regulation 96/2021.

If ultimately enforced, the Draft Regulation will replace the phrase, “Annual Work Plans and Funding Budgets”, as originally featured under Regulation 96/2021, with the phrase, “Work Plans and Funding Budgets” (Rencana Kerja dan Anggaran Biaya – “RKAB”), which removes the annual element of mineral and coal-mining businesses’ RKAB.[4] This adjustment in nomenclature is in line with the most recent RKAB adjustment outlined under Regulation of the Minister of Energy and Mineral Resources (“Minister”) No. 10 of 2023 (“Regulation 10/2023”),[5] which mandates that the validity period for RKAB breaks down into one year for the exploration phase and three years for the production-operation phase.[6]

Against the above backdrop, this edition of Indonesian Legal Brief (“ILB”) presents a summary of the various provisions that feature under the framework of the new Draft Regulation, specifically as they relate to the following matters:

1. Prioritization of Special Mining Business License Areas (Wilayah Izin Usaha Pertambangan Khusus – “WIUPK”) for Private Entities;
2. Adjusted Extension of Mining Business Licenses (Izin Usaha Pertambangan – “IUP”) and/or IUPK (collectively referred to as “Mining Permits”) for Subsidiaries of State-Owned Enterprises (Badan Usaha Milik Negara – “BUMN”);
3. Mandatory Share Ownership under Production-Operation Mining Permits; and
4. Extension of IUPK as a Continuation of the Operation of Contracts of Work (Kontrak Karya)/ Coal Contracts of Work (Perjanjian Karya Pengusahaan Pertambangan Batubara/PKP2B) (collectively referred to as “Operation Continuation”).

Prioritization of WIUPK for Private Entities

Currently, under the framework of Regulation 96/2021, the Minister has prioritized BUMN and Regionally Owned Enterprises (Badan Usaha Milik Daerah – “BUMD”) as recipients of WIUPK.[7] In this regard, Regulation 96/2021 states that WIUPK may subsequently be offered to private mineral and coal-mining businesses if no BUMN or BUMD are interested in the offered WIUPK.[8]

However, under the Draft Regulation, the aforementioned WIUPK granting prioritization is set to be extended to private entities. In this regard, it should be noted that the applicable criteria and mechanism for WIUPK prioritization for private entities have yet to be detailed under the Draft Regulation and will be specifically addressed under a forthcoming Regulation of the President.[9]

Adjusted Extension of Mining Permits for BUMN Subsidiaries

Regulation 96/2021 outlines the maximum limit for extensions of issued Mining Permits based on the relevant mining operation-production activities and affirms that Mining Permits that have been secured by BUMN are eligible to be granted repeated 10-year extensions in order for said BUMN to engage in further mining operation-production activities.[10] However, the Draft Regulation states that the aforementioned 10-year extensions of Mining Permits for mining operation-production activities are also now available to BUMN subsidiaries that have secured relevant Mining Permits.[11]

Mandatory Share Ownership under Production-Operation Mining Permits

Pursuant to Regulation 96/2021, mining operation-production activities that are based on issued Mining Permits that involve integration into processing and/or refining facilities (for Mining Permits holders) or development and/or utilization activities (for IUPK holders) are required to meet certain criteria that depend on the relevant commodities in order to ultimately secure 10-year extensions for issued Mining Permits. Overall, the currently applicable criteria include the following:[12]

1. Relevant processing, refining, development and/or utilization activities are being carried out by the relevant Mining Permits holders;
2. Reserves for operational needs are available (for metal-mineral commodities); and/or
3. Compliance with the applicable provisions on types and/or minimum percentages of produced coal (for coal commodities).

While the above-listed criteria have been retained, the Draft Regulation has also now added an additional criterion for the securing of 10-year extensions for issued Mining Permits. This additional criterion states that processing, refining, development and/or utilization activities that are carried out by other business entities must involve a minimum direct or indirect share ownership by Mining Permits holders that amounts to at least 30% and that may not be diluted.^[13]

Extension of IUPK as Operation Continuation

While Regulation 96/2021 currently states that previously issued production-operation IUPK will remain valid up until their expiration dates, the Draft Regulation has now clarified that said production-operation IUPK will act as IUPK as Operation Continuation.[14] Moreover, the Draft Regulation also states that any production-operation IUPK that were issued prior to the enforcement of Law 4/2009 are now eligible to be granted permit extensions, on condition that the following criteria are fulfilled:[15]

1. Must possess integrated domestic processing and/or refining facilities;
2. Shares in the relevant company must be at least 51% owned by Indonesian participants;
3. Must have made an effort to boost state revenue accounts;
4. Reserves for operational needs must be made available;
5. Must have engaged in new share transactions with BUMN and these should amount to at least 10% of the total shares and may not be diluted;
6. Must have committed to new investments in the following forms, as approved by the Minister: a) Advanced exploration activities; and b) Capacity enhancements for refining facilities.

The aforementioned IUPK as Operation Continuation extensions will be granted in line with the availability of reserves and will be evaluated every 10 years.[16] In this regard, the securing of such a permit extension requires the submission of an application request to the Minister at least one year prior to the expiration of the relevant production-operation period along with eight types of required documents (e.g. proof of fixed and production fee payment, operation-production activities report, RKAB and so forth).[17] It should also be noted that the Minister may issue an approval for a submitted application for IUPK as Operation Continuation extension before the expiration date of the relevant IUPK.[18] 

Source: hukumonline.com