The Constitution stipulates that Indonesia's natural resources are controlled by the state and must be used for the maximum benefit of the Indonesian people. Article 4, paragraph 2 of Law 4/2009 on Coal and Mineral Mining (Law 4/2009) enables the central government or the regional government to exercise control over mineral mining activities. However, the draft Amendment to Law 4/2009 (the Mining Law Amendment) eliminates the authority of regional governments to exercise control over minerals, with this authority to be held exclusively by the central government.
The government has the authority to grant certain private parties mining permits (IUPs) to conduct mining activities. An IUP does not grant ownership of the minerals in the ground. Ownership of the minerals is transferred from the government to the IUP holder once the royalty payment has been settled.
In accordance with this, land rights do not give the rights holder ownership of the minerals in the ground or the right to mine the minerals. Unless the land rights holder also holds a mining licence, it will not have the right to mine the minerals in the ground.
Acquisition of Rights by Private Parties
Under Law 4/2009, mining activities can be conducted only after obtaining an IUP, which may be granted by the Ministry of Energy and Mineral Resources (MEMR) or a governor, regent or mayor, according to their respective authority. IUPs can be granted to:
- business entities;
- cooperatives; and
Article 38 of the Mining Law Amendment changes the term 'individuals' to 'proprietorship'. Unfortunately, it does not provide any definition of proprietorship or elucidate this change.
Under Law 4/2009 and its implementing regulations, IUPs are divided into exploration IUPs (IUPEs) and operation production IUPs (IUPOPs). An IUPE covers the general survey, exploration and feasibility study stages, while an IUPOP covers the construction, mining, processing and refining stages, as well as transportation and sales.
An IUPK can also be granted by the MEMR to private entities. An IUPK holder is permitted to mine in a special mining business licence area that is located in a state reserve. However, state-owned and regional-owned enterprises have priority over private entities when it comes to obtaining an IUPK.
Before applying for an IUP, the applicant must participate in a tender process organised by the MEMR or governor, depending on the location of the mining area to be tendered, to obtain a mining business permit area (WIUP). There is an exemption for non-metal minerals and rock mining, whereby a WIUP and an IUP can be obtained through an application to the MEMR or governor.
An IUPK will be granted after the mining company has secured a special mining permit area (WIUPK) through a competitive bid (for metal minerals and coal) or through an application (for non-metal minerals). State-owned and regional-owned enterprises have priority when it comes to obtaining a WIUPK. The MEMR or the governor can offer a WIUPK to private businesses if no state-owned or regional-owned enterprises are interested in the offer or meet the financial, technical and administrative requirements for the WIUPK. An IUPK may also be granted upon an application by a CoW holder whose CoW will expire, in the manner set out under MEMR Regulation 7/2020.
Law 4/2009 provides a guarantee to IUPE holders that they can obtain an IUPOP to continue their mining business activities. The holder of an IUPE or IUPK exploration may apply to the MEMR or governor, according to their respective authority, to upgrade the licence to an IUPOP or an operation production IUPK (IUPKOP).
Private companies that are engaged in mining-related activities (eg, mineral processing, refinery activities or mineral trading) are also subject to the licensing system under Law 4/2009. Any company that conducts mineral processing and refinery business activities must obtain an IUPOP specifically for processing and refining (IUPOPK-PR). Companies engaging in mineral trading business activities must obtain an IUPOP specifically for transportation and sales (IUPOPK-TS).
Under article 35 of the Mining Law Amendment, the reference to IUPOPK-TS is replaced by transportation and sales licence. The Mining Law Amendment also removes IUPOPK-PR from the list of mining licences that can be granted to businesses. Article 103 of the Mining Law Amendment provides that IUP or IUPK holders must conduct mineral processing and refinery activities domestically. Based on article 104 of the Mining Law Amendment, the processing and refinery activities can be done by IUP or IUPK holders integrated with their mining activities or by entering into a cooperation with other IUP or IUPK holders that own processing and refinery facilities, or with other companies that run processing and refinery activities that are not integrated with mining activities and that operate based on the licence issued in accordance with the laws and regulations on industry.
This first appeared in the Lexology GTDT Mining 2020 global guide. You can find the full chapter here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.