Member Article

In line with the national long term program to improve the mining and energy sectors to support the development of the country, as well as to ensure that the supply of energy and mineral resources to the domestic market can be met, the Government of Indonesia has been working hard to expedite the process to issue new regulations in the mining and energy sectors.

Foreign Investment in the Energy and Mineral Resources Activities

In the context of one door services for foreign investment, the Minister of Energy and Mineral Resources (“MEMR”) issued MEMR Regulation No. 05/2010 regarding Delegation of Authority to the Chairman of the Capital Investment Board (“BKPM”) to Issue the Business License in the Energy and Mineral Resources Activities (“MEMR Regulation No. 05/2010”). Under MEMR Regulation No. 05/2010, the BKPM is authorized to issue the approval for foreign investment in the energy and mineral resources on behalf of the MEMR.

The energy and mineral resources activities covered under MEMR Regulation No. 05/2010 are: (i) geothermal, mineral and coal mining, (ii) electricity power, (iii) geothermal, mineral and coal mining services, and (iv) support services for oil and gas. It is noteworthy that the authorizations given to the BKPM to issue the business license for foreign investment companies which carry out energy and mineral resources activities are limited to those specified in MEMR Regulation No. 05/2010. For example, for the geothermal, mineral and coal mining sectors, business license can be issued by BKPM for companies which have obtained the recommendation from MEMR.

The MEMR’s recommendation is required for obtaining the BKPM approvals related to, among other things, the license to obtain any investment facilities, customs approval for importation of machinery or equipment, change of shareholder, investment plan and financing, amendments of the articles of association, and change of the Board of Directors and Commissioners.

Mineral and Coal and Mining

More than one year after Law No. 4 of 2009 regarding Mineral and Coal Mining (“Mineral and Coal Mining Law”) was promulgated, there are some implementing regulations issued under decrees of the President or the MEMR.

Domestic Market Requirement for Coal for the Year 2011

On 30 August 2010 the MEMR issued a regulation regarding the domestic market coal requirement for the year 2011. Coal mining companies are required to sell their coal to fill domestic market requirements in the minimum of 24,17% of their total production.

Under this regulation, the MEMR decided that the estimated coal requirement for the domestic market is 78,97 million tons, while the estimated coal production is 326,65 million tons which will be produced by 42 Coal Contract of Work companies, 1 State Owned Company, and 10 IUP holders.

Standard Price for Minerals and Coal

Under MEMR Regulation No. 17 of 2010 on Procedures to Determine the Standard Price of Minerals and Coal issued on 23 September 2010, holders of mineral and coal mining business licenses (Production and Operation Mining Business License) must sell their minerals and coal products based on the standard price determined by the MEMR. This standard price is applicable for the sales to domestic market, exports or the sales to affiliated parties. The standard price is also applicable for the spot and term sales.

The standard price will be issued by the MEMR each month based on the market mechanism and/or the standard price in the international market. This regulation provides that the standard price will be issued for (a) minerals, which consists of stone, metal and non-metal minerals, and (b) coal, which consists of thermal coal and cooking coal (metallurgical coal). The standard price will also be issued by the MEMR for minerals and coal of low quality.

The price for the sales of minerals as agreed by the seller and the buyers must be first submitted to the MEMR (through the Director General of MEMR), and the sales contract must be executed within one month (for metal minerals) or three months (for raw or concentrate minerals) after the price is agreed by the seller and the buyer. Furthermore, the seller must submit the annual report to the Director General regarding the delivery schedule and its amendments.

As for coal, the standard price for spot sales shall be the standard price applicable for the relevant month when the coal is delivered to the buyer, while the standard price for term sales shall be the average standard price for the last three months when the agreed price is determined by the seller and the buyer. Note that the standard price for term-based contracts of coal will be applicable for 12 months. If the contracts are made for a period of more than 12 months, the standard price must be revised each 12 months.

This regulation also provides the possibility to sell a type of coal (such as, fine coal, reject coal, and coal of certain level of purity) at a price under the standard price determined by the MEMR, provided that prior approval from the Director General of MEMR (on behalf of the MEMR) has been obtained.

Participation of Subsidiaries/Affiliates in the Mining Activities

Involvement of a subsidiary and/or affiliate in the geothermal, mineral and coal mining activities conducted by a geothermal, mineral or coal mining business license (“IUP Holder”) can only be made with approval from the MEMR. On 10 May 2010, the Director General of Mineral, Coal and Geothermal issued a regulation setting out the procedures and requirements to obtain the approval from the MEMR for the participation of subsidiaries and/or affiliates in geothermal mining services activities.

Under this regulation, an affiliate of the holder of a geothermal mining license is defined as an entity having a direct share ownership with the holder of the geothermal mining license (“Geothermal IUP Holder”), with the following details:

1. the IUP Holder holds at least 20% ownership of the shares in the affiliated company;
2. the IUP Holder holds more than 50% of the voting rights in the affiliated company, based on an agreement to have a direct control over the financial and operations policies of the affiliated company; and/or
3. the IUP Holder authorizes to appoint and dismiss the finance and operation directors or their equivalent position in the affiliated company.

The approval for the appointment of a subsidiary and/or affiliate in the geothermal, mineral or coal mining activities can be issued by the MEMR, if: (i) there is no mining services company in the relevant province, regency, or city, or (ii) the IUP Holder has conducted a tender, offering third parties to provide the required goods or services to the IUP Holder, but no successful bidder is appointed, among other things, because they do not have the specified requirements.

In this situation the IUP Holder must announce in the local or national media for a maximum period of 10 calendar days regarding its plan to obtain the required goods or services from third parties, but no one is interested or meets with the specified requirements. This announcement must be made twice subsequently.

Direction and Supervision for Mineral and Coal Mining Activities

One of the recent implementing regulations related to the Mineral and Coal Mining Law is Government Regulation No. 55 of 2010 regarding Direction and Supervision for Mineral and Coal Mining Activities, issued on 5 July 2010. Under this regulation, the MEMR, the relevant Governors or Regents/Mayors will be in charge of directing and supervising mineral and coal mining activities conducted by the holders of mining business license (IUP), community mining license (IPR) or special mining business license (IUPK). The supervision is conducted by the Mining Inspectors and authorities appointed by the MEMR, Governors or Regents/Mayors.

The supervision is to be conducted annually and consists of among other things, inspection to the mining site and evaluation of the reports submitted by the holders of the IUP, IPR and IUPK regarding their mining activities. Under this regulation, Mining Inspectors are authorized to temporarily stop some parts or the entire mining activities and to submit a recommendation to the Chief Mining Inspector for the license holder to cease certain mining activities permanently.

Oil and Gas

On 25 June 2010, new Guidelines for the Issuance of Registration Statement Letters (Surat Keterangan Terdaftar or “SKT”) under Director General of Oil and Gas Decision No. 15784.K/10/DJM.S/2010 Tahun 2010 were issued. This new guideline revoked Director General of Oil and Gas Decision No. 8298.K/10/DJM.T/2009 dated 1 May 2009 concerning the Guideline for the Issuance of SKT. An SKT is granted both to individuals and companies issued by Director General of Oil and Gas through the Director of Gas Technical and Environment. An SKT must contain, among others things, the issuance date of SKT, the name and address of the company/individual, classification of business activities, obligations of the company/individual, administrative sanction and an expiry date of the SKT. To obtain an SKT, a company/individual must submit an application along with the supporting documents to the Director of Gas Technical and Environment. Then, the Director of Gas Technical and Environment through their sub directorate will conduct an examination and evaluation to the application submitted by the company/individual. An SKT will be issued within 5 (five) working days as of the completion of the examination and evaluation process.

 

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