Indonesia's New Mining Law
After more than 3 years of deliberation, Indonesia’s controversial new Mining Law was passed by Parliament on 16 December 2008 (the new Mining Law). The new Mining Law will be effective once signed by the President and otherwise by mid January 2009. There have been significant changes from previous drafts of the law. Despite this, many provisions of the new Mining Law remain unclear, ambiguous and open to interpretation.
There are various penalties for non-compliance Key elements of the New Mining Law include:
- the current system of mining rights under Contracts of Work (COW), Coal Contracts of Work (CCOW) and KuasaPertambangan (KPs) has been abolished and replaced by a new scheme of mining permits including Mining Business Permits (Izin Usaha Pertambangan) (IUPs) and Special Mining Business Permits (Izin Usaha Pertambangan Khusus) (IUPKs);
- there are tender/action provisions to apply in respect of the issue of certain types of mining permits;
- all Indonesian entities including those with foreign shareholders (PMA Companies) can hold IUPs – this is distinct from the regime to date where PMA Companies could only directly hold COWs and CCOWs and not KPs. However, there is also a divestment requirement for foreign shareholders of PMA companies holding IUPs - although the process and extent of divestment is unclear;
- permits will have size and duration limits, and will generally be provided for exploration and production phases of mining;
- processing of ore in Indonesia is now required – the extent of processing is not clear on the face of the new Mining Law; and
- production royalties must be paid, with additional amounts payable where activities are in State Reserve Areas.
Although there are “savings” provisions for existing COWs (these will continue until expiry, but must be “adjusted” in accordance with the new Mining Law), there are no savings or transitional provisions in respect of KPs. This means a current lack of certainty as to the status of KPs and the transition between the current system and the regime under the new Mining Law.
Implementing regulations are to be issued, which may clarify key aspects of the new Mining Law and remove some of the uncertainty noted above. We will provide further updates as developments occur.
