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New rules on the Indonesian mining business

Freddy KaryadiOene Marseille

On February 21 2012, the Indonesian government issued Government Regulation No 24/2012 (GR 24) which revised Government Regulation No 23/2010 on Mining Business Activities.

Unlike the earlier divestment requirement which only ordered foreigners to divest 20% within five years, GR 24 now requires further progressive divestment by foreign participants of up to 51% of the capital in a company that holds a mining licence (IUP) or special mining licence (IUPK) to an Indonesian party by the date 10 years after commencement of commercial production. Furthermore, if any application for an IUP is made by a foreign investment company the application may only be approved by the relevant Minister.

GR 24 also introduces new provision on how the IUP can be transferred: it can now be transferred to a company in which at least 51% of the shares are held by another company which holds another IUP.

On February 6, the Ministry of Energy and Mineral Resources issued Regulation of MEMR No 7 of 2012 regarding Increment Added Value of Mineral through Mineral Processing and Refining Process.

Pursuant to this regulation, each type of metal mineral mining commodities must be processed and/or refined by fulfilling at least the minimum requirements stipulated in the attachment to the regulation. Metal mineral mining commodities, including its by-products/waste products/associated mineral, non-metal mineral and certain rocks which will be sold abroad must meet the said minimum requirements. Regulation No 7/2012 does not stipulate the same requirements for metal mineral mining commodities that will be sold domestically, and this has led to the assumption that raw metal mineral mining commodities may be sold domestically in the form of raw material or ore. This assumption has been verbally confirmed by the Ministry of Energy and Mineral Resources.

Holders of an IUP for the operation production (locally known as Izin Usaha Pertambangan Operasi Produksi, or IUPOP) of metal minerals, including nickel, are obliged to conduct the processing and/or refining of their minerals domestically, and this processing and/or refining process may be conducted directly by themselves. If the direct/self processing and/or refining is viewed as unfeasible for economic reasons, the IUPOP holder may do the processing and refining in cooperation with another IUPOP holder. A cooperation between holders of IUPOP holders requires the approval of the Director General of Mineral Mining. The cooperation may be a cooperation in the sale and purchase of ore or mineral concentrates; the processing and/or refining process activities; or a joint development of processing and/or refining facility and infrastructure.

Regulation No 7/2012 also requires all IUP holders to adjust their processing and/or refining plan in compliance with the requirements set forth in the regulation.

Oene Marseille and Freddy Karyadi

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