Coal Mining Permits in Indonesia


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Rights of Australian investors against Indonesian mining laws
King & Wood Mallesons – Max Bonnell, Monique Carroll and Sara Rayment
Australia, Indonesia March 5 2014

The Indonesian Government has implemented laws prohibiting the export of raw minerals by foreign investors or subjecting their export to progressive export taxes and requiring the divestment of foreign held mining licenses. These laws are expected to cause foreign investors to suffer significant loss.

Export Ban

Recently, Indonesia’s ban on the export of unprocessed ore, Regulation No. 1 of 2014 (“MEMR 1/2014”), came into effect meaning that all mineral commodities (excluding coal) must now be processed or refined domestically prior to export. MEMR 1/2014 forms part of the 2009 Mining Law, an initiative that was introduced to increase Indonesia’s exploitation of its own natural resources.

MEMR 1/2014 aims to increase the domestic processing of ore and stimulate investment in Indonesia’s limited domestic smelting infrastructure.

While a 3 year exception has been made in relation to semi-processed materials including iron, copper, titanium, lead, manganese and zinc, Indonesia’s Ministry of Finance has imposed new export taxes on these minerals that increase each year for the term of the 3 year exception, as part of the plan to encourage the processing of materials domestically.

Not only will the regulations affect foreign investors’ current business models, Indonesia’s onshore processing capacity is also in question. Many investors are therefore unsure of how to proceed in the new market climate and the ramping up of Indonesia’s divestment program.

Divestment Program

Late last year, the Indonesian Government’s Minister of Energy and Mineral Resources issued the procedure for implementing the 2009 Mining Law. This requires that, upon 5 years of operation, foreign owned shares in an IUP Company (companies holding Production Operation Mining Permits, formerly known as Mining Authorisations, that permit the commencement of a production operation stage upon completion of an Exploration IUP stage) to be offered for sale to a list of Indonesian participants comprised primarily of state or state owned entities. The offers are to be made in stages so that by the 10th year, at least 51% of the shares are owned by the Indonesian Participants (“Divestment Program”). Unlike MEMR 1/2014, the Divestment Program applies to coal mining interests.

Regulation No. 27 of 2013 on Procedures for Divestment and Share Pricing and Changes to Investment in Mineral and Coal Mining Business (“MEMR 27/2013”) provides guidance on how the Divestment Program will be implemented. IUP companies are required to begin divesting shares 90 days after their fifth year of production.

MEMR 27/213 requires that investors divest their shareholdings at a price equal to replacement cost being: investment cost – (accumulation/amortization + liabilities). It is possible that this pricing mechanism will result in a price below market-value. This pricing mechanism may also be inconsistent with Indonesia’s Investment Law pursuant to which the Government can acquire investments upon payment of market price.

If IUP Companies fail to comply with the Divestment Program, their mining activities may be suspended or their IUP or production operation permit revoked.

What Can Investors Do?

Foreign investors are seeking to mitigate the fallout of MEMR 1/2014 and the Divestment Program and implement strategies to manage political risk going forward. For many, this will mean either accepting the losses resulting from the introduction of MEMR 1/2014 and the Divestment Program or attempting to fight the regulations in Indonesia’s courts. It is unclear whether local courts will provide effective and just remedies to foreign investors.

However, Australian investors have additional rights of protection. This is because the Australian and Indonesian Government have agreed that the Indonesian Government will provide certain additional protections for Australian investors. Pursuant to this agreement, Australian investors can seek compensation from the Indonesian Government for losses suffered if the Indonesian Government does not abide by the promised protections.

These additional protections and rights have been provided under the Bilateral Investment Treaty between Indonesia and Australia (“Australia-Indonesia BIT”) and under the 2010 ASEAN – Australia – New Zealand Free Trade Area (“AANZFTA”). Australia and Indonesia are both parties to this multilateral treaty.

What rights do Investors have?

Between the Australia-Indonesia BIT and the AANZFTA, Australian investors with investments in Indonesia can require Indonesia to:

pay adequate compensation (assessed at market values) if it “expropriates” (or takes) the investment;
accord fair and equitable treatment to the investment;
encourage and create favourable conditions for investors to invest in its territory;
submit disputes to independent arbitration (enforceable in a similar manner as international commercial arbitration); and
give ‘most favored nation status’, so that any protections granted to foreign investors of other States must also be offered to Australian investors. Indonesia is a party to numerous bilateral and multilateral treaties with other countries and these may be a source of further protections.

Depending on your circumstances, any number of these protections might be breached by the Mining Law or the Divestment law. If so, as a protected investor under Australia’s treaties, it will be possible to claim compensation from the Indonesian Government. Before doing so, the investment treaty rights will provide a good background within which negotiations with the Indonesian Government can be conducted.

How can Australian Investors enforce their rights?

These treaties provide for recourse against Indonesia for Australian investors affected by MEMR 1/2014 and the Divestment Program. Unlike claims commenced against the state in that host state’s local court system, claims brought under the Australia-Indonesia BIT or AANZFTA, are determined by an independent panel appointed by the parties or by an impartial arbitral institution.

The Australia-Indonesia BIT provides for disputes to be resolved by ICSID Arbitration at the International Centre for the Settlement of Investment Disputes, a member of the World Bank Group in Washington. A recent decision of an ICSID tribunal, however, held that under the specific terms of the Australia-Indonesia BIT, Indonesia is not required to submit disputes to arbitration. So unless the Indonesian government has separately agreed to submit investment disputes to arbitration, investors are likely to have stronger rights under AANZFTA. The AANZFTA provides a choice of ICSID or United Nations Commission on International Trade Law arbitration.

Importantly, the enforcement process is effective. If an ICSID tribunal grants an award in favour of an investor, the amount of that award may be enforced against assets located in any of the 158 countries party to the 1965 Washington Convention. For most other tribunals, awards may be recognised and enforced against assets located in any of the 149 countries that are a party to the 1975 New York Convention on International Commercial Arbitration.

Next steps

If you are concerned about the impact of these laws on your investment, please contact us. We can help you develop a risk management and dispute resolution strategy.


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Government’s illegal mining crackdown puts the breaks on coal trading licenses
Baker McKenzie – Luke D. Devine, Norman S. Bissett and Muhammad Karnova
Indonesia June 16 2014


http://jakartaglobe.id/news/indonesia-clamp-coal-industrys-worst-excesses/
Indonesia to Clamp Down on Coal Industry’s Worst Excesses
By : David Fogarty | on 9:30 PM October 23, 2014


A barge is loaded with coal at a loading terminal on the Mahakam River, near Samarinda, East Kalimantan. (Photo courtesy of David Fogarty)


A large coal pit stands abandoned near the East Kalimantan village of Makroman, where residents accuse mining company CV Arjuna of refusing to rehabilitate and reclaim mining site. (Photo courtesy of David Fogarty)

Out of the jungles of East Borneo in Indonesia comes the fire that fuels Asia’s burgeoning economies: coal.

Miners dig deep, open pits, clearing forests and farmlands to extract coal from thick, black seams, which is then crushed and loaded onto trucks and barges for shipment to China, India, Japan and other destinations in Asia.

Indonesia, itself a large and growing customer, produced 421 million metric tons last year, according to official government figures, with about 350 million tons exported to feed the region’s growing demand for energy. India and China are the top two buyers.

Output has tripled within a decade and Indonesia is now the world’s top exporter of thermal coal used in power stations, earning the government billions of dollars in royalties. Coal taxes are a vital source of revenue for the country, helping plug a budget deficit running at about 3 percent of gross domestic product.

But with this success has come a multitude of ills, including large-scale deforestation, water pollution, conflict with local and indigenous communities and health costs from coal dust. Add to this corruption, tax evasion, illegal mining and illegal exports, which are costing the government millions of dollars in revenue. The industry is becoming a threat to itself, the economy and the national and global environment. Burning coal is the single largest source of carbon dioxide emissions blamed for climate change.

In response, the central government has launched a major drive to clean up the sector and weed out the worst players, mostly small mining companies, but it remains to be seen if the authorities can claw back greater control. The aim is to limit the sector’s rapid growth and to impose tougher enforcement of regulations – crucial if the government is going to able to manage growing demand for Indonesia’s coal.

About half the coal comes from the resource-rich province of East Kalimantan. To get a sense of the scale of the industry, you only need to stand on the main bridge across the Mahakam river, which flows through the provincial capital Samarinda. Barges the size of an Olympic swimming pool flow past every few minutes, pulled by tugboats to bulk carriers waiting along the coast nearby.

Each barge carries about 8,000 tons of coal, most loaded up river from myriad coal terminals that jut out into the river. Samarinda is ringed by coal mines and vast coal stockpiles that constantly feed the barges via conveyer belts.

Energy security

As Indonesia’s oil reserves dwindle, coal’s importance grows.

“The idea is that we have to consider our energy security. We consider that coal is our prospective energy in the near future,” said Bambang Tjahjono, the director of coal business supervision at the Ministry of Energy and Mineral Resources’ Directorate-General of Mineral and Coal.

About 60 million Indonesians are not connected to the grid and the government is pushing rapid investment in coal-fired power stations to fix power shortages. Like the resource booms of oil and gas, logging and oil palm before it, coal is regarded as a quick and easy fix and a cash cow, with environmental concerns often secondary.

NGOs say Indonesia needs to focus more on renewable energy investment and curbing conflict between mines and local communities, whose land is increasingly under threat. To clean up the sector, the government has called in the Corruption Eradication Commission (KPK), which is leading a sweeping review of mining permits.

“The focus for KPK is to increase government revenue and avoid revenue leakage,” Tjahjono said in a recent interview.

In another major initiative, new trade rules that took effect Oct. 1 target illegal coal exports. Combined, Tjahjono hopes both initiatives will lead to a leaner, more tightly regulated sector.

For NGOs, the crackdown is essential but some fear it won’t head off looming environmental and social problems because of the large number of mines and permits. And, depending on where global coal prices go, more mines could come on line.

“I think there will be more problems because half the mining permits will be finishing up in the next 10 or 15 years. Our prediction for 2020, we will have very serious environmental damage. That’s only one problem. It will also be with other problems, such as health and land conflict,” said Merah Johansyah, who leads the East Kalimantan branch of Indonesian mining NGO Mining Advocacy Network, or Jatam.

According to the Ministry of Energy and Mineral Resources, there are 3,922 permits for coal exploration, operations and production across the country. Most are in Kalimantan and Sumatra, which contain the majority of Indonesia’s coal reserves.

Central and local governments do not have the resources to monitor these permits, analysts, NGOs and the ministry say.

“There are a lot of mining companies in this place and the administration is not nearly as strong as, say, Australia or the United States,” said a senior mining executive on condition of anonymity.

Of the total permits, 1,461 are listed as non-clean and clear because of irregularities, such as mines overlapping with other mining or agricultural concessions, the ministry says.

A province-by-province analysis of all coal permits shows they totaled just over 21 million hectares in 2013, roughly the size of the US state of Kansas or three times the size of the Republic of Ireland. While many of these will never become mines, the scale highlights the risk of social conflict and environmental damage in a country with 250 million people, many of whom rely on farmland, forests and rivers for their livelihoods and customs.


A large coal pit stands abandoned near the East Kalimantan village of Makroman, where residents accuse mining company CV Arjuna of refusing to rehabilitate and reclaim mining site. (Photo courtesy of David Fogarty) A large coal pit stands abandoned near the East Kalimantan village of Makroman, where residents accuse mining company CV Arjuna of refusing to rehabilitate and reclaim mining site. (Photo courtesy of David Fogarty)

Top challenge

Most of the problems are at the district level. Regional autonomy laws gave districts much greater powers, and this triggered the explosion of mining permits.

In East Kalimantan, district heads have issued about 70 percent of all mining permits, with the money boosting district revenues, funding re-election campaigns and, at times, for personal enrichment.

“One of the top challenges for the industry is the coordination between government departments and between the central and regional governments, because this is one of the keys to sustainable development that meets the needs of investors,” said Sacha Winzenried, a senior adviser in energy, utilities and mining for PricewaterhouseCoopers, the multinational business services firm.

“Whether it’s managing the level of production, because the district head has different interests to the central government, or whether it’s environmental, health and safety, that level of coordination doesn’t work as it should,” he said.

Regional government mining offices often lack the resources, the budget or the will to up-skill themselves, he added.

The lack of oversight means the central and local governments do not know the exact number of mines that are producing coal in Indonesia – roughly estimated at 400. And no one knows how much coal is illegally produced and exported. While 421 million tons is the official production figure for 2013, the ministry says it is closer to 500 million because of 50 million to 60 million tons of what it calls “missing exports.” However, others say illegal production is much higher.

Not all coal mines are the same and most of the problems stem from the multitude of smaller, loosely regulated mining outfits. These operate for relatively short periods, have little regard for local communities and often abandon their mining pits once they cease operation, government officials and NGOs say.

Most of Indonesia’s coal is produced by a handful of large companies that have direct contracts with the government. These also pay higher royalties than companies granted mining permits called IUPs.

“Within Indonesia, you can see a marked difference between what may be called the formal sector and the other less formal end of the markets. And where there are clearly environmental issues is with the less regulated sector, either illegal miners or the very small players,” said PwC’s Winzenried.

Working with the KPK and the Supreme Audit Agency, the Ministry of Energy and Mineral Resources and other agencies are focusing on the 12 provinces with the highest number of mining permits. The aim is to review the legality of the permits, check if mining companies have valid tax identity numbers, are paying their taxes fully and whether the permits overlap palm oil and other mining concessions and protected forest areas – a common problem in Indonesia.

To date, the program has led to the suspension of more than 300 mining permits by local officials, with more expected.

The new trade rules state that only coal mining companies that have business permits assessed as clean and clear can export coal. Exports will also have to go through designated ports.

“This should stop or decrease poor mining practices, those that are unsafe and non-compliant with environmental rules,” said Tjahjono. “That means we can close those companies.”

Good regulations, lax enforcement

Indonesia has another tool at its disposal: stringent environmental regulations governing mining practices. But they need much stronger enforcement, government officials, analysts and NGOs say.

Companies must submit detailed environmental impact assessments and prepare detailed rehabilitation and post-mining reclamation plans. Companies have to place large deposits into a bank account to ensure they carry out mandatory rehabilitation and reclamation of affected areas.

However, lack of qualified mining inspectors, lack of expertise at the district and provincial level and, most likely, graft, mean many smaller mines are not inspected as often as they should be, laws are not enforced and permits are rarely terminated for bad practices.

Tjahjono said the ministry was trying to train up more mining inspectors.

“The problem is not many engineers are interested in this training,” he said.

In total, the mining ministry says there are 10,992 permits for mining of all types across the country, raising questions about how to effectively monitor all of them. According to a source involved with the KPK-led investigation, these 10,922 permits are owned by 7,834 companies. Of these, 17 percent do not have a tax number.

The mining concessions covered by these permits include 26 million hectares of the national forest estate. According to the source, the permits cover 1.3 million hectares of conservation forests, which are no-go zones for mining. In addition, the permits cover five million hectares of protection forest, which are prohibited for open-pit mining.

A study published earlier this year found that coal mining was one of the top causes of deforestation after palm oil, logging and clearing for pulp plantations. The study examined forest loss within industrial concessions between 2000 and 2010 and found that coal mining had caused 300,000 hectares of forest loss versus 1.6 million hectares in oil palm concessions. With more coal mining comes an increased threat to remaining forests.

Changing the mindset

Jatam takes a harder line on coal mining than most NGOs. It wants coal mining stopped altogether, an unlikely scenario since the Indonesian government expects domestic coal demand for power generation, currently around 73 million tons per year, to double by 2022.

“We agree that everyone needs energy. But we don’t want the energy to come from threatening the people, coming from land grabbing. We need to change the mindset of people,” said Johansyah’s colleague, Hendrik Siregar.

Jatam works with local communities under threat from coal mines, advising on legal options and encouraging villagers and farmers not to sell. It’s easy to see why. Samarinda is known as the city of coal mines. Roughly 70 percent of the city and surrounding area is under mining permits and the landscape is littered with the scars of mines and abandoned coal pits, many now filled with water.

About a 40-minute drive from the city is the village of Makroman. Farmers earn a living growing rice and fruit, such as rambutans and durians. The village is under threat of being cleared and developed by an adjacent coal mine run by an Indonesian firm called CV Arjuna.

About six years ago, a company official came to the village to take soil samples and measurements. This was the first the villagers heard about the company or the planned mine.

“He was like a thief,” said farmer Niti Utomo, 66, who, like many of the other villagers, has been resisting CV Arjuna’s efforts to buy their land.

The company began developing its mine several years ago and it now surrounds the village and its farmlands on two sides. Huge pits have been dug to extract the coal, leveling hills and forests and disrupting water supplies for the rice fields.

While the mine has built a dam for irrigation, this sometimes runs dry, leaving the rice crops to wither in the dry season. Ultimately, CV Arjuna wants to acquire all of the 365 hectares in the village and has offered large sums of money to owners, some of whom have accepted.

Utomo, who has farmed in the area for over 40 years, has refused the money.

“I will fight till I die to keep the land,” he said as we spoke next to his rice field.

In an e-mailed response to questions, a company official said CV Arjuna’s permit to operate, granted by the city government in 2011, was fully legal. The official provided a list showing the company had met the mining ministry’s clean and clear status and said the company would rehabilitate the large coal pit next to the village.

There are about 200 coal mines in East Kalimantan, according to the provincial environment office, which handles environmental impact assessment reports and helps carry out mining inspections. Of these, about 20 percent were not complying with the government’s environmental regulations, officials said. The situation was not improving.

” Tidak bagus ,” said Wiwit Guritno, head of water pollution control for the provincial government, meaning “not good.”

“It’s getting worse, I think,” he added after conferring with his colleague Priyo Harsono, the provincial head of environmental impact assessments (EIAs).

A major problem was the quality of oversight at the district level, which issues most of the EIAs. While the quality of the EIAs was generally good, it was the monitoring of mines and enforcement of regulations that was a consistent problem.

Mines are rated according to water quality, how they manage solid and hazardous wastes and particularly whether mines have followed the strict reclamation and re-vegetation of mined-out pits. Companies failing to comply are given warnings and the environmental office can recommend law enforcement action.

“We have given the information to the district head but they haven’t closed the mining,” said Harsono.

Abandoned pits remain a big problem in the province but new rules aim to incentivize companies to rehabilitate their pits before they can expand production. While efforts to improve the sector are laudable, some question the value of coal mining.

Greenpeace wants coal exports wound back and says coal mining acts like a double-whammy for climate change because of toxic emissions caused during production and burning.

“I think coal mining is the silent killer for Indonesia, not only for the environment but also for people,” said Arif Fiyanto, climate and energy campaigner for Greenpeace Indonesia.

“The government is always using the argument of coal is the key contributor to Indonesia’s economic growth. In reality, the coal export contribution to our GDP is three percent.

“The benefit doesn’t justify the damage coal mining causes.”

This article was first published on Mongabay.com and has been edited for reprint on the Jakarta Globe. A continuation of this story will appear in the Globe on Monday.


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Indonesia’s coal export restrictions become effective
Hogan Lovells – James Harris
Indonesia November 20 2014

Indonesia, one of the world’s largest producers and exporters of thermal coal, has instituted restrictions on the export of coal, effective as of 1 October 2014, requiring that proposed exporters register with the Ministry of Trade and obtain a license to export.

At least one large Indonesian coal miner has already publicly announced that it has obtained the requisite license and, according to the Government of Indonesia, at least 98 licenses have been issued to date. Industry commentators predict that the new restrictions will reduce exports from Indonesia and potentially increase coal prices.

The new restrictions provide, among other things, a survey procedure for coal exports, which includes verification that royalties have been paid by the relevant mining company. The requirements are intended to provide an additional means for the government to prevent illegal mining activities (including unlicensed mining, mining in contravention of environmental regulations and failure to pay royalties). Additionally, government officials have indicated in public statements that the export license system may be used to impose export quotas for purposes of supporting coal prices (by reducing supply in the market) and facilitating domestic coal consumption (such as for domestic electricity generation).

The government has previously instituted policies, such as the “clean and clear” certification program, to facilitate oversight of mining companies, and has imposed a similar exporter registration and licensing program in relation to exports of ore and other unprocessed metal minerals.

Indonesia’s 2009 Mining Law stipulates that the government has the authority to regulate exports of coal and minerals. The coal export restrictions were originally intended to come into effect on 1 September 2014, but the effective date was delayed to 1 October 2014 in response to industry concerns regarding the time required to process the initial licenses.

The restrictions and licensing requirements are contained in Minister of Trade Regulation No. 39/M-DAG/PER/7/2014, as amended by Regulation No. 49/M-DAG/PER/8/2014.


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http://www.indonesia-investments.com/news/news-columns/overlapping-land-conflicts-troubled-mining-business-licenses-in-indonesia/item6553
Overlapping Land Conflicts & Troubled Mining Business Licenses in Indonesia
29 February 2016

Pius Ginting, CnC, Clean and Clear Certificate, Regional Governments, Mining Business License, IUP, Local Governments, Corruption, Mining, Energy

West Kalimantan, South Sulawesi and South Kalimantan are the three Indonesian provinces that scored the worst in the Local Government Performance Index (in Indonesian: Indeks Kinerja Pemerintah Daerah, or IKPD). This index, compiled by Indonesia’s Corruption Eradication Commission (KPK), measures the degree of coordination and supervision within Indonesian provinces regarding policies and actions related to the prevention of corruption in the mining and energy sectors. The provinces that have the highest scores are Central Sulawesi and the Riau Islands.

Pius Ginting, Coordinator of the Mining Anti-Mafia Coalition, explained that the Local Government Performance Index measures to what extent local governments are serious about enhancing good management practices in the mining and energy sectors.

One of the indicators that is influential for the score in the index is the number of existing Mining Business Licenses (Izin Usaha Pertambangan/IUP) that do not (yet) have the mandatory clean and clear certificate (CnC). The recently introduced CnC certificate shows that the miner has no outstanding royalty obligations and other tax debts, fulfilled its exploration and environmental commitments, has no property delineation issues and obtained the necessary forestry permits.

While there are a total of 10,331 IUP-holders in Indonesia (per February 2016), only 6,365 of these miners have obtained the CnC certificate. Ginting says that this index should encourage provinces to revoke those IUPs that do not have the CnC status.

Number of Mining Business Licenses (IUP) in Indonesia:
IUPs withCnC Status IUP without CnC Status Total IUPs
6,365 3,966 10,331
Source: Indonesian Ministry of Energy and Mineral Resources

Tjahjo Kumolo, Indonesian Minister for Home Affairs, added that one of the key troubles in resource-rich provinces are frequent cases of overlapping land and natural resource rights. These situations exists due to weak management of local governments and – most likely – the result of corruption.

As the Local Government Performance Index focuses on the mining and energy sectors, the survey was only conducted in those provinces that have significant natural resources used for power generation. These 12 provinces are Central Sulawesi, Riau Islands, Central Kalimantan, East Kalimantan, Bangka Belitung, Southeast Sulawesi, North Moluccas, South Sumatra, Jambi, West Kalimantan, South Sulawesi, and South Kalimantan.


http://www.reuters.com/article/indonesia-coal-idUSL4N16F4C4
Indonesia could deplete coal reserves by 2033 – PwC
Markets | Mon Mar 7, 2016 10:39am EST

Indonesia could exhaust its economically retrievable coal reserves by 2033, a study by PriceWaterhouseCoopers released on Monday showed.

Indonesia is among the world’s top exporters of thermal coal, but its output has slipped in recent years as plummeting prices of the power station fuel have forced miners to cut costs.

The PwC study is based on information from 25 coal mining companies representing around 80 percent of Indonesia’s output, and looked into the availability of domestic coal for the 35 gigawatts of power stations Indonesia hopes to build by 2019.

Cost cuts by miners have included reducing exploration and stripping ratios – the amount of dirt removed to expose mineable coal, PwC Indonesian advisory chief Mirza Diran told reporters.

“Exploration to find new coal reserves has pretty well stopped,” Diran said, adding that these two factors had reduced the lifespan of the country’s coal mines.

Based on government data, Indonesia had around 32.3 billion tonnes of coal reserves in 2014. However, declining stripping ratios and profitability have led to a drop in coal reserves of 30 to 40 percent, Diran said, noting that the survey found coal reserves of between 7.3 billion and 8.3 billion tonnes.

In these circumstances, Indonesia’s coal reserves could be depleted between 2033 and 2036, he said.

“There is a possibility that national coal reserves … will not be enough to supply 20 gigawatts of power stations for 25-35 years,” Diran said, referring to the portion of the 35-gigawatt programme that is expected to be coal-fueled.

Coal miners’ profitability – as reflected in earnings before interest, taxes, depreciation and amortisation (EBITDA) – declined by 60 percent to $2.5 billion in 2014 from $6.5 billion 2011 among the group of miners studied, Diran said.

As a result, in 2015 the companies’ spending had fallen by around 80 percent to $400 million from the $1.9 billion spent in 2012.

“Our survey indicates this decline will continue with a (further) 10 to 20 percent decline in 2016.”

Responding to the findings, the Indonesian Coal Mining Association urged the government to lock in measures to set coal prices based on miners’ costs.

Association chairman Pandu Sjahrir said he hoped such a pricing policy would help stimulate investment in exploration and stabilise the economy, as well as secure coal reserves for the country’s power stations. (Reporting by Agustinus Beo Da Costa; Writing by Fergus Jensen; Editing by Dale Hudson)


http://www.indonesia-investments.com/news/todays-headlines/not-enough-coal-reserves-to-supply-indonesia-s-35-000-mw-power-program/item6580?
Not Enough Coal Reserves to Supply Indonesia’s 35,000 MW Power Program?
08 March 2016

PriceWaterhouseCoopers, Coal Price, Power Generation, APBI, Power Plants, PwC, Coal Reserves, Electricity, Coal Mining, Coal

The Indonesian Coal Mining Association (APBI) advises the central government to recalculate the amount of coal required for Indonesia’s 35,000 MW power plant program. According to APBI, Indonesia does not have enough coal reserves to serve as power source for this ambitious program. The program, launched by President Joko Widodo in 2015, aims to add a total of 35,000 MW to the nation’s power capacity by 2019 (about 20,000 MW being coal-fired plants). PriceWaterhouseCoopers states that Indonesia may have depleted its coal reserves by the year 2033.

Pandu Sjahrir, General Chairman of APBI, said there exists a big discrepancy between Indonesia’s coal reserves figure as estimated by the Ministry of Energy & Mineral Resources and the figure estimated by PwC. Whereas Indonesia’s Energy Ministry puts the nation’s proven coal reserves at 32.3 billion tons (2014 estimate), PwC put Indonesia’s existing coal reserves in the range of 7.3 – 8.3 billion tons as the result of declining stripping ratios and limited new exploration activities.
PwC, the world’s largest professional services firm, claims that Indonesia is bound to run out of its coal reserves somewhere between the years 2033-2036 provided existing rates of production are continued, meaning there will not be enough coal to supply 20 GW of power stations for the next 25-35 years as part of the 35,000 MW program.

This would imply that in about a decade or two Indonesia needs to import coal to fuel the coal-fired power plants that are being built as part of the country’s 35,000 MW power program. Currently, Indonesia is still one of the world’s top exporters of thermal coal. However, both Indonesia’s coal production and export have plunged sharply in recent years due to weak global demand and dramatically dropping coal prices (see table below).

Mirza Diran, President Director of Advisory at PwC Indonesia, says the firm’s survey shows that it is not economically viable (on the long term) to use coal as energy source for the nation’s power stations. In response to weak conditions in the global coal mining industry, Indonesian miners have reduced exploration and stripping ratios to cut costs.
This partly explains why the lifespan of Indonesia’s coal reserves have been cut. Indonesian coal miners spent a total of around USD $400 million in 2015, down a staggering 80 percent (y/y) from USD $1.9 billion one year earlier. PwC expects spending to decline by 10 – 20 percent in 2016.

Further Reading: Overview of Indonesia’s Coal Industry

PwC advises the Indonesian government to change the price mechanism for Indonesian coal. The new price for domestic coal sales should include an incentive for miners to engage in exploration. This way, the future coal supply for 20 GW of the total 35 GW of power plants can be guaranteed. Currently, Indonesia’s coal price (Harga Batubara Acuan, abbreviated HBA) is mostly based on the average of global coal prices. However, as domestic coal demand is rising, more and more voices are heard that say the price should reflect this higher domestic demand.

Indonesian Production, Export, Consumption & Price of Coal:
2007 2008 2009 2010 2011 2012 2013 2014 2015
Production
(in million tons) 217 240 254 275 353 412 474 458 376
Export
(in million tons)
163 191 198 210 287 345 402 382 296
Domestic
(in million tons) 61 49 56 65 66 67 72 76 80
Price (HBA)
(in USD/ton) n.a n.a 70.7 91.7 118.4 95.5 82.9 72.6 60.1
Sources: Indonesian Coal Mining Association (APBI) & Ministry of Energy and Mineral Resources


http://jakartaglobe.id/business/indonesia-coal-oil-may-be-depleted-in-10-years-2/
Indonesia Coal, Oil May Be Depleted in 10 Years
By : Tito Summa Siahaan | on 9:26 PM June 14, 2013


In this photograph taken on June 5, 2012 coal are loaded in a barge for transport on a river in Central Kalimantan province. (AFP Photo/Romeo Gacad)

Indonesia may find itself without the fossil fuels crude oil and coal in the next decade, unless there are major new discoveries, according to an annual report released by British energy giant BP.

The Statistical Review of World Energy 2013, which was released on Thursday, showed that Indonesia may run out of oil by 2024, holding constant the figures for production and proven reserves.

The report showed oil production from the Southeast Asian nation stood at 918,000 barrels per day last year, with remaining reserves at 3.7 billion barrels. Oil consumption was 1.56 million barrels in 2012.

Indonesia’s rapidly declining oil reserves have attracted attention. In the past decade, Indonesia’s reserves have declined by 21 percent, in contrast to the overall

26 percent increase worldwide.

Lack of successful exploration and maturing wells are viewed as the reasons why Indonesia lost its oil exporting nation status in 2003, subsequently leading to its decision to exit the Organization of the Petroleum Exporting Countries in 2008.

“World proven oil reserves at the end of 2012 reached 1,668.9 billion barrels, sufficient to meet 52.9 years of production,” according to the BP report.

Coal, which is plentiful in Indonesia, is expected to be completely depleted in the next 14 years, according to the report.

Indonesia’s coal reserves were estimated at 5.5 billion metric tons, compared to global reverses of around 860 billion tons. Last year alone, 237.4 million tons of coal were mined in Indonesia, with roughly

70 percent of output shipped to the world’s larger economies, like China and India.

Global coal reserves were estimated at around 860.9 billion tons last year, or the equivalent of 109 years of production.

While lagging behind in terms of development, Indonesia has greater proven reserves of natural gas, estimated last year at 2.9 trillion cubic meters. That’s amounts to 19.1 billion barrels of oil equivalent.

Output, meanwhile, was 71.1 billion cubic meters last year, or enough to sustain production for roughly 41 years.

In the past 10 years, the country has seen natural gas reserves climb 12 percent, although this is barely 50 percent of the rate of growth globally, at 21 percent.


http://www.insideindonesia.org/samarinda-s-deadly-mining-pits
Samarinda’s deadly mining pits
Inside Indonesia 124: Apr-Jun 2016
Tessa Toumbourou
Published: Jun 21, 2016


A GSM plaintiff and a farmer stand on the edge of her mined land in Samarinda – Armin Hari

Decentralisation, Land Rights, Mining, Work

Tessa Toumbourou

On 23 March 2016 two high school students – Noval Slamat Riyadi, aged 16, and Diki Aditya Pratama, aged 15 – were found drowned in an abandoned mining pit in Kutai Kartanegara, East Kalimantan. The teenagers’ deaths bring to 22 the number of children that have drowned in unused, water-filled mining holes in East Kalimantan since 2011. Only three months prior, a 13-year-old, Aprilia Wulandari, was found drowned in a soccer field-sized mine pit on the outskirts of Samarinda, the regional capital of East Kalimantan. Aprilia was reportedly playing with friends on her way home from school when she fell into the unmarked pit.

One hundred-and-fifty such pits scar Samarinda’s landscape, with an estimated 500 in total across East Kalimantan, according to the regional branch of the Network for Mining Advocacy (JATAM). JATAM recently released a confronting YouTube film with interviews of the families who have lost children to mining pits.

Decentralisation laws, particularly the 2009 Minerals and Coal Mining Law, gave district and municipal administrations the authority to issue mining permits. As a result, mining has exploded across Indonesia. In East Kalimantan alone, nearly 50 per cent of the province is now covered in coal mining permits, threatening agricultural land and conservation areas. New powers for allowing district governments to issue permits did not, however, correspond with an increase in budget or capacity for local management and monitoring of mining operations or clean-up activities. The results are devastating.


East Kalimantan mining pit from the air – Tessa Toumbourou

The costs of a poorly monitored mining industry

Decentralisation and the global mining boom brought chaos to the industry. In many places multiple permits have been issued for the same land area, permits have been allocated illegally in conservation and protected forests and along water catchment areas, and there has been a huge loss of state revenue – official estimates suggest that up to half of Indonesia’s mining companies pay no royalties and are not registered to pay tax.
A recent investigation by Indonesia’s Corruption Eradication Commission identified losses of almost US$1.24 billion in public revenue across Indonesia’s mining sector. Of a total of 10,827 mining permits issued across the country, 4563 were found to not meet ‘clean and clear’ standards, which include having a detailed environmental impact assessment and a post-mining reclamation and rehabilitation plan.

The proliferation of mining permits has had a damaging impact on people and the environment, particularly in Samarinda, where mining consumes 70 per cent of the municipality’s land area. Some mines are located within metres of homes and schools. While the industry brought employment and investment, it has also been the source of much angst -landslides and flooding worsened as a result of mining expansion in Samarinda according to JATAM’s research, with the World Wildlife Fund estimating the cost of the resulting damage at around $9 million.

Acids and sulphates from mining have leeched into rivers, contaminating local water catchment areas, fish ponds and wet rice fields according to local farmers in and around Samarinda who have experienced dramatic reductions in yields as a result.


Samarinda from the air – JATAM East Kalimantan

With the boom in coal exports now over, many small and medium-sized mines have closed or remain inactive. But they continue to pose a serious threat to residents. The blue-green colour of the water-filled mine pits lures young people to them, who then misjudge the depth of the pits and the steep sides that make them difficult to escape.
Furthermore, Greenpeace researcher Cut Hilda Meutia found that the pits contained high levels of chemicals, including magnesium, iron, aluminium, cadmium and arsenic. As the impact of ingesting or absorbing these chemicals is not immediate, the negative effects accumulate over time.

The community’s right to a clean environment

Civil society organisations (CSOs) have worked hard to push local administrations to clean up abandoned sites. For years, CSOs have advocated for improved management of mining in East Kalimantan, home to 28 per cent of Indonesia’s coal reserves. In 2013, after 11 people had drowned in disused mining pits in East Kalimantan, CSOs decided to pursue legal avenues.
A case was submitted to the Samarinda High Court on 25 June 2013, beginning a year-long trial known as the Gerakan Samarinda Menggugat (Samarinda Citizen Lawsuit, GSM). Nineteen plaintiffs impacted by coal mining presented at the trial, including rice farmers and fishermen who claimed that their diminishing water supplies were increasingly acidic due to dust particles released by mining operations.


A GSM plaintiff and a farmer stand on the edge of her mined land in Samarinda – Armin Hari

On 16 July 2014, judges ruled in favour of the plaintiffs, finding that the government had been negligent in fulfilling their obligations under the 2009 Environmental Law, which states, ‘Everyone shall be entitled to a proper and healthy environment as part of their human rights’. By not fulfilling this requirement, the court decided, the local government had denied the people of Samarinda their right to enjoy a clean and safe environment.
The court also ordered the government to evaluate all coal mining permits in Samarinda, monitor reclamation and other post-mining efforts, and take action to protect community farming and fishing areas from contamination by coal mining activities. Yet, since then little has improved, and children continue to drown in exposed coal mining pits in Samarinda and in the neighbouring district of Kutai Kartenegara.

Shifting authority and shifting blame

NGOs believe one of the reasons for the sluggish response could be the recent reforms that have shifted authority over mining permits. The Regional Governance Law (Law No. 23/2014) introduced in October 2014 moves authority for coal and mineral mining (as well as forestry and fisheries) from district governments to provincial governments and the central government.
Following a transition period, which should be completed by 2 October 2016, provincial governments will be responsible for issuing permits, and also for evaluating the status of problematic mining permits in their jurisdictions. Governors must report the results to the central government, which will decide whether to maintain or cancel the permits.

Muhammad Muhdar, lawyer and researcher at Samarinda-based NGO Prakarsa Borneo, explains that post-mining clean-up and pit closure is the responsibility of companies. District governments – until the introduction of the new law – were tasked with enforcing and overseeing this process. Yet despite the real dangers of leaving mine sites exposed, companies often evade their reclamation responsibilities.
Laws require that companies set aside funds for reclamation activities before conducting extraction work, but in practice these obligations are often not met. ‘There are many companies that do not put aside reclamation funds, so the government doesn’t have the resources it needs to close mine sites,’ says Muhdar.

Frustrated with government inaction and excuses, CSOs have tried to find creative responses to the problem. ‘The government always gives the excuse that there is not enough funding for closing mines’, says Merah Johansyah of East Kalimantan JATAM. NGO activists have held actions following children’s deaths in local mining pits, asking fellow Indonesians to donate Rp.1000 to crowd-fund mine closures. ‘When the funds are collected, we’ll give the money to the government. So they won’t have any further excuses for inaction.’


Protestors demand improvements to mining governance in Samarinda – JATAM national

Better late than never

East Kalimantan governor Awang Faroek Ishak has indicated his willingness to reform mining governance. Awang has a chequered past when it comes to the mining industry. During his time as district head of East Kutai, Awang was named by the Attorney General’s Office for embezzling state funds resulting from the sale of a portion of coal company PT Kaltim Prima Coal. But his recent attention to the industry’s problems is welcome, even if it comes late in the day.

In 2013 Awang issued a provincial moratorium on new concessions for mining, plantations and pulp and paper, which was restated in 2014. Awang has issued a statement saying that those companies on whose concessions mining-pit deaths have occurred must submit a mine closure plan and report on reparations paid to victims.
Perhaps the most important reform has been the passing of a provincial regulation in 2015 enacting a supervisory commission. The commission will consist of government and civil society representatives tasked with overseeing mining reclamation and clean-up efforts, an important development that will introduce transparency and participation in the mining clean-up process, ensuring that pits are closed safely and in accordance with environmental standards.

An important step for improving mining governance in Indonesia will be ensuring that the shift in authority for mining permits from district to provincial governments does not slow down reforms. In the end it is the central government that should ensure there is no confusion over the division of responsibilities between the districts and the provinces.

President Joko Widodo, or Jokowi, was in East Kalimantan on 23 March 2016, when the bodies of teenagers Noval and Diki were found in mining pits. In response Jokowi has issued an audit of all mining permits issued in East Kalimantan. ‘I order the Ministry of Environment and Forestry and the Ministry of Energy and Mineral Resources to control and check mining [operations], especially small mining sites that don’t prioritise work safety,’ Jokowi told media in Balikpapan.

It seems momentum is finally gathering, and there is now an opportunity to tighten controls and mitigate further losses to human life, and to the ecosystems on which life is sustained. For this to happen, Jokowi needs to ensure that his demand for an audit of the mining sector results in real improvements in mining governance in East Kalimantan.

Tessa Toumbourou (t.toumbourou@student.unimelb.edu.au) is a PhD student at the University of Melbourne and has worked in Indonesia as an environmental governance researcher.


http://www.reuters.com/article/us-indonesia-coal-environment-idUSKCN0ZF03U
Indonesia faces environmental time bomb after coal bust
Global Energy News | Wed Jun 29, 2016 | 7:37am EDT
By Fergus Jensen | SAMARINDA, Indonesia
(Writing by Clara Ferreira Marques, Editing by Bill Tarrant.)

Thousands of mines are closing in Indonesia’s tropical coal belt as prices languish and seams run dry. But almost none of the companies have paid their share of billions of dollars owed to repair the badly scarred landscape they have left behind.

Abandoned mine pits dot the bare, treeless hillsides in Samarinda, the capital of East Kalimantan province on Indonesia’s part of Borneo island. It is ground zero for a coal boom that made Indonesia the world’s biggest exporter of the mineral that fuels power plants. Abandoned mining pits have now become death traps for children who swim in them, and their acidic water is killing nearby rice paddies.

Indonesia has tried, mostly in vain, to get mining companies to keep their promises to clean up the ravaged landscape. But it doesn’t even have basic data on who holds the many thousands of mining licenses that were handed out during the boom days, officials say.

“Nobody was in control,” said Dian Patria, who works on natural resources at the country’s Corruption Eradication Commission (KPK).

Patria estimated that 90 percent of the more than 10,000 mining license holders had not paid the reclamation funds they owe by law. One-third are for coal.

Even if they wanted to, many companies now lack the cash. The same large banks that leant billions during the boom have now pulled out of coal, wary of the sector’s commercial outlook and contribution to climate change.

The problem is not unique to Indonesia. As mineral prices languish, even major global miners are trying to avoid hundreds of millions of dollars in increasingly hefty closure costs, mostly by selling off pits.

FEW QUESTIONS ASKED

After pro-democracy protesters swept Indonesia’s authoritarian president Suharto from power in 1998, the Jakarta government gave towns and districts control of natural resources as part of far-reaching decentralization reforms aimed at preventing the archipelago from fracturing.

Newly empowered local leaders handed out thousands of mining licenses, many of them to small operators, as coal prices leapt from around $40 per ton in 2005 to nearly $200 at their peak in 2008. In East Kalimantan alone, around half the province was covered in coal mining permits.

Under President Joko Widodo, elected in 2014, Indonesia has promised to turn around its dismal environmental record. The administration has also wrested control over natural resources away from local leaders, giving it to provincial governors instead.

Awang Faroek Ishak, East Kalimantan’s governor, has issued a moratorium on new licenses. He is threatening to punish mining companies that have failed to restore the land, he said in an interview. But the data on mining companies and funds for rehabilitation are missing, he said.

http://s2.reutersmedia.net/resources/r/?m=02&d=20160629&t=2&i=1143326581&w=644&fh=&fw=&ll=&pl=&sq=&r=LYNXNPEC5S01E
A tug boat pulls a coal barge along the Mahakam River in Samarinda, East Kalimantan province, Indonesia, March 2, 2016. REUTERS/Beawiharta/File Photo

“How can we look into this if we don’t have the documents,” he complained.

Greenpeace activist Kiki Taufik says governors do, however, have the authority to freeze permits and operations while they investigate. “The governors have authority, but they never use this authority.”

PATCHY OVERSIGHT

Most of the mining licenses went to small firms, many of which have gone bankrupt or simply abandoned their operations, mining industry officials say.

“For now, it’s really difficult not to lose money,” said Budi Situmorang, a mining engineer at small coal miner CV Arjuna. “All we can really do is hold on. Looking at the 56 mines in Samarinda, no more than 10 are still active.”

The mining companies themselves are supposed to restore the land from money they paid into accounts held at state banks and supervised by local officials.

“That’s what you’re supposed to do, but in practice very few people do it,” except for the major mining firms, the head of Indonesia’s Coal Mining Association, Pandu Sjahrir, told Reuters.

The central government has had a list since 2011 of nearly 4,000 licenses that have failed to meet their requirements. It expects to be able to revoke the problematic permits only by January 2017.

Patria’s team at the anti-corruption agency is pushing for the national government’s Supreme Audit Agency (BPK) to investigate miners – including over unpaid rehabilitation funds estimated in the hundreds of millions.

Even that is only a fraction of the cash that would actually be required, says Merah Johansyah from the Mining Advocacy Network (JATAM).

Pressure from campaigners is increasing as mine closures reach a peak by 2020, according to some industry estimates. One set of 2,272 coal permits and contracts, compiled by mining consultancy SMGC and reviewed by Reuters, showed the average expiry date of the permit is October 2017.

Also In Global Energy News
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MINING WITHOUT PERMITS

But environmental watchdogs say an end to permits does not mean an end to mining. “In East Kalimantan, even where permits have long been revoked, they’re still operating,” Syahrul Fitra, a legal researcher at the environmental NGO Auriga told Reuters. “What we found in the field is that no punishments have been applied.”

In areas where companies are conducting reclamation activities, it is usually not to replant forests — most mining concessions are being turned into housing developments, agricultural land or other uses, environmentalists and industry officials say.

In the meantime, the run-off water and mud from abandoned pits, numbering around 150 in Samarinda alone, are polluting surrounding rice paddies and rivers.

After his employer closed a small mine in Samarinda, Suyadi, who like many Indonesians uses one name, went back to working the small rice paddy on his family’s farm on the edge of the city. The mines, however, have followed him there.

“Like it or not, the tailings flow here,” says Suyadi, referring to the stream of chemically treated mining debris that is left after coal is extracted.

“If they continue to leave it like this, where else will that water flow? To the lower areas where there are rice paddies,” Suyadi said.

The attractive aqua hue of the water in the abandoned pits conceals a darker story: 24 local children using them as swimming holes have drowned around Samarinda over the past five years.


http://www.indonesia-investments.com/news/news-columns/commodities-indonesia-moratorium-on-new-coal-mining-concessions/item7060?
Commodities Indonesia: Moratorium on New Coal Mining Concessions
01 August 2016

CnC, Coal Industry, IUP, Moratorium, Environment, Coal Mining, Coal

Indonesia’s Ministry of Energy and Mineral Resources will soon issue a moratorium on new coal mining concessions. This moratorium will be implemented after the issuance of a planned presidential instruction regarding a five-year moratorium on new palm oil plantation concessions. Heriyanto, Head of the Legal Department Directorate General of Minerals and Coal at the Energy Ministry, emphasized that the moratorium in Indonesia’s mining industry only involves coal, not the mining of miner

Similar to the planned moratorium in the palm oil sector, a moratorium in Indonesia’s coal mining sector aims at safeguarding the environment. Earlier Indonesian President Joko “Jokowi” Widodo repeatedly stated that Indonesia needs to enhance and ensure protection of the environment so that future generations of Indonesia can enjoy the beauty and benefits of the rich environment.

Moratoriums in the palm oil and coal mining sectors will also show the world that the Indonesian government is willing to take efforts that aim at the preservation of the environment. After the severe forest fires and toxic haze (spreading to other parts of Southeast Asia) that occurred between June and October 2015, international criticism on Indonesia’s environmental policies (and the lack of protection) rose significantly. Although some say it is easy to implement a moratorium on new coal mining concessions now coal prices are touching multi-year lows, others say it is still a valuable moratorium because amid low coal prices companies – those that are in the coal mining market for the long run – now have the momentum to purchase new concessions for a relatively cheap price. The moratorium, however, blocks their ambitions.

Those mining companies that already obtained concessions (prior to the moratorium) will still be able to expand their coal business as long as their expansion plans are in line with existing permits and regulations. Once the moratorium on new coal mining concessions is put in place, the nation’s coal mining companies are still able to expand their businesses through acquisitions or mergers.

Read more: Overview of the Coal Mining Industry of Indonesia

Budi Santoso, Director at the Centre for Indonesian Resources Strategic Studies (Ciruss), said the government’s plan to impose a moratorium on new coal mining concessions should be regarded a positive move. This moratorium can provide the momentum to order and organize the coal mining sector in terms of mining permits. Since the Reformation period when the process of decentralization was started, the regional governments of Indonesia in coal-rich areas (particularly on Kalimantan and Sumatra) have been issuing thousands and thousands of Mining Business Permits (Izin Usaha Pertambangan, or IUPs) – possibly because local officials can make some extra money through the issuance of the license – without keeping a proper administration. Hence, there occur numerous cases of overlapping concession areas, while many of the mining companies lack the mandatory clean and clear certificate (CnC). This CnC certificate – that was introduced two years ago – shows that the miner has no outstanding royalty obligations and other tax debts, fulfilled its exploration and environmental commitments, has no property delineation issues and obtained the necessary forestry permits.

Read more: Overlapping Land Conflicts & Troubled Mining Business Licenses in Indonesia

Bambang Gatot, Director General for Coal and Minerals at the Energy Ministry, said there were 10,388 IUP-holders in Indonesia in the first half of 2016, while 4,023 of them lack the CnC status.

http://www.indonesia-investments.com/news/todays-headlines/palm-oil-industry-indonesia-five-year-moratorium-on-new-concessions/item7006
http://www.indonesia-investments.com/business/commodities/coal/item236
http://www.indonesia-investments.com/news/news-columns/overlapping-land-conflicts-troubled-mining-business-licenses-in-indonesia/item6553


http://www.wsj.com/articles/foreign-miners-pull-up-stakes-in-indonesia-1472558809
Foreign Miners Pull Up Stakes in Indonesia
Sara Schonhardt, Aug. 30, 2016 8:48 a.m. ET
Sara.Schonhardt@wsj.com

-Rhiannon Hoyle in Sydney contributed to this article.

Newmont Mining’s exit after more than 30 years illustrates the companies’ growing difficulties there


The massive Batu Hijau mining pit on the Indonesian island of Sumbawa in 2005; after more than 30 years in Indonesia, Newport Mining is selling its piece of the mine to a group of local investors. Photo: Jonathan Drake/Bloomberg News

JAKARTA, Indonesia-When Newmont Mining Corp. began exploring for gold in Indonesia in the 1980s, the country’s wealth of untapped resources was seen as the Colorado-based miner’s ticket to the big leagues.

The Batu Hijau copper and gold mine in eastern Indonesia was one of the largest undeveloped deposits in the world, and Newmont’s billion-dollar investment put it on the path to becoming the world’s No. 2 gold miner by output.

More than three decades later, Newmont’s exit from Indonesia illustrates that the country has become a more difficult place for foreign miners to operate, say analysts. Newmont in June agreed to sell its 48.5% economic interest in the local unit that runs the mine, PT Newmont Nusa Tenggara, to a group of local investors led by Indonesian-listed oil-and-gas company PT Medco Energi Internasional Tbk. Japan’s Sumitomo Corp., with which Newmont operates the mine, is selling its stake to the group as well.

This came a few weeks after BHP Billiton’s sale of its coal interests in Indonesia to a unit of local energy group PT Adaro Energy Tbk.

Heavier regulation was a factor in the decision to leave, Newmont Chief Executive Gary Goldberg told The Wall Street Journal earlier this month.

In recent years Indonesia has required foreign miners to gradually reduce their stakes to less than half, raised the taxes and royalties they pay and mandated they process ore locally-requiring a major investment in smelters at a time when commodity-price uncertainty has miners around the world tightening their belts.

Newmont has had “good success” with the Batu Hijau deposit over the years, Mr. Goldberg said, but the company had an investment decision to make: The next phase of mining would require an additional $2 billion over the next five years, he said, and company executives were concerned about how long it would take to get a return.

Newmont, which has mines across the globe including in the U.S., Australia, Ghana and Peru, has spent the past few years overhauling its business-cutting production costs, buying and selling mines and paying down debt, which at roughly $2.7 billion is about half what it was three years ago.

During a conference call to discuss the sale, Mr. Goldberg said the company is consolidating assets around high-margin projects in lower-risk areas and turning its focus back to gold.

A Sumitomo spokesman cited concerns in Indonesia including “changes in regulations or laws, restrictions to foreign investment and weak rupiah currency.” It agreed to sell along with Newmont “to maximize the asset value of Batu Hijau,” the spokesman said, adding that the “Indonesian market is still promising and we continue to expand our business field there.”

Vast deposits of copper, nickel and coal have drawn foreign miners to Indonesia for decades, and mining has contributed greatly to the country’s economic growth. But growing nationalism, policy uncertainty and some officials’ desire for the state to take control of natural resources has raised risks for foreign miners, analysts say.

By law, miners are required to eventually shift from long-term contracts of work to a licensing system in which they say their rights are more limited. Analysts say the rules have made Indonesia an increasingly difficult place to do business and have deterred exploration investment.

“Major multinational mining companies increasingly just see Indonesia as too hard for them,” said Bill Sullivan, a Jakarta-based legal adviser to mining-related companies.

Earlier this year, mining giant BHP Billiton Ltd. said it agreed to sell its 75% interest in IndoMet Coal to PT Alam Tri Abadi to pursue other options that BHP said were more attractive for future investment.

The government says foreign miners are still willing to invest in Indonesia. Bambang Gatot Ariyono, director-general of minerals and coal at the energy ministry, said several companies have signed amended contracts, and the government is working with miners to revise and clarify rules.


Newmont ore in a warehouse at the Sumbawa island port of Benete in 2005. Photo: Jonathan Drake/Bloomberg News

A spokeswoman for Medco said that as a domestic company it sees long-term value in investing in Indonesia and is confident it will secure the licenses needed to keep the mine operating.

Some major miners, such as U.S. gold and copper producer Freeport McMoRan, are sitting on resources too valuable to abandon, say industry players. A spokesman for PT Freeport Indonesia said that the company intends to continue to cooperate with the government.

However, many smaller miners have suspended operations and some large-scale operations have reduced mining activities and exports due to uncertainty over contract extensions, say analysts.

Indonesia’s ban on the export of unrefined ores-meant to increase the value of the country’s exports-hit some companies particularly hard. To receive an export permit, companies had to demonstrate progress on refining. After the ban took effect in 2014, Newmont’s local unit ceased exports for more than eight months and declared force majeure on existing contracts.

Newmont’s exit sends a signal to other miners that Indonesian mining projects are no longer competitive, said Ian Wollff, a longtime geologist and independent consultant to the mining industry. “They [Newmont] are saying…’We’ve got money, but why should we spend it there? Maybe we’re better off spending it somewhere else.'”

DENNIS MARTIN, Aug 30, 2016
Newmont’s exit sends a signal to other miners that Indonesian mining projects are no longer competitive, said Ian Wollff, a longtime geologist and independent consultant to the mining industry. “They [Newmont] are saying…’We’ve got money, but why should we spend it there? Maybe we’re better off spending it somewhere else.'”
A bit off the subject, but this is exactly why I am liquidating my assets in California and moving to a more friendly investment climate.
Money is fungible.

Kenneth Fuss, Aug 30, 2016
I wonder if the increased regulation of foreign miners has anything to do with the Riady family? They have extensive mining interests in their home country.
That’s right, the same Riady family that bankrolled Bill Clinton back in Arkansas. Subsequently, Bill repaid them by by making one of the world’s largest low-sulfur coal deposits (in Utah) a national monument. The Riady family still exports low-sulfur coal from its Indonesian mine to utility companies in the USA.

RICHARD GRESHAM, Aug 30, 2016
Batu Hijau (Rock Green) and Freeport’s Grassberg produce primarily copper with large gold credits. Freeport’s contract of work expires in a couple of years as per an agreement with the Indonesia government almost two decades ago.
The government demanded that Freeport and Newmont process their concentrate locally rather than shipping to Japan and China, a not too unreasonable demand given the cash flow of these operations. Copper is down at the present. It will be interesting to see if Freeport is able to renegotiate their COW (Contract of Work) given their reluctance to build a smelter in Indonesia???

http://quotes.wsj.com/NEM
http://www.wsj.com/articles/newmont-mining-to-sell-indonesian-mine-for-920-million-1467285254
http://www.marketwatch.com/story/bhp-to-sell-indonesia-coal-assets-to-adaro-2016-06-07
http://www.wsj.com/articles/newmont-sees-dividends-rising-provided-gold-prices-cooperate-1470890128


http://www.indonesia-investments.com/business/commodities/coal/item236
Coal
Updated on 5 September 2016

Coal – a fossil fuel – is the most important energy source for electricity generation and also forms an essential fuel for the production of steel and cement. A negative characteristic of coal, however, is that it can be labelled as the most polluting energy source due to its high proportion of carbon. Other vital energy sources, such as natural gas, are less polluting but significantly more exhaustive and more susceptible to price fluctuations on the world market. Therefore, the world’s industries have increasingly shifted their focus to coal.

At current rates of production (and if new reserves are not found), global coal reserves are estimated to last for around 112 years. The biggest reserves are found in the USA, Russia, China and India.

Top 10 Coal Producers in 2015¹ ²
1. China 1827.0 Mt
2. USA 455.2 Mt
3. India 283.9 Mt
4. Australia 275.0 Mt
5. Indonesia 241.1 Mt
6. Russia 184.5 Mt
7. South Africa 142.9 Mt
8. Colombia 55.6 Mt
9. Poland 53.7 Mt
10. Kazakhstan 45.8 Mt
¹ commercial solid fuels only, i.e. bituminous coal, anthracite (hard coal), lignite and brown (sub-bituminous) coal
² million tons oil equivalent
Source: BP Statistical Review of World Energy 2016

Coal in Indonesia

Indonesia’s Coal Production and Export

Indonesia is one of the world’s largest producers and exporters of coal. Since 2005, when it overtook Australia, the country is leading exporter in thermal coal. A significant portion of this exported thermal coal consists of a medium-quality type (between 5100 and 6100 cal/gram) and a low-quality type (below 5100 cal/gram) for which large demand comes from China and India.
According to information presented by the Indonesian Ministry of Energy, Indonesian coal reserves are estimated to last around 83 years if the current rate of production is to be continued. Regarding global coal reserves, Indonesia currently ranks 10th, containing roughly 3.1 percent of total proven global coal reserves according to the most recent BP Statistical Review of World Energy. Around 60 percent of Indonesia’s total coal reserves consists of the cheaper lower quality (sub-bituminous) coal that contains less than 6100 cal/gram.

There are numerous smaller pockets of coal reserves on the islands of Sumatra, Java, Kalimantan, Sulawesi and Papua but the three largest regions of Indonesian coal resources are:
1. South Sumatra
2. South Kalimantan
3. East Kalimantan

The Indonesian coal industry is rather fragmented with only a few big producers and many small players that own coal mines and coal mine concessions (mainly in Sumatra and Kalimantan).

Since the early 1990s, when the coal mining sector was reopened for foreign investment, Indonesia witnessed a robust increase in coal production, coal exports and domestic sales of coal. Domestic use of coal remains relatively small. Indonesia’s coal exports account for between 70 and 80 percent of total coal production, the remainder is sold on the domestic market.

Indonesian Production, Export, Consumption & Price of Coal:
2007 2008 2009 2010 2011 2012 2013 2014 2015
Production
(in million tons) 217 240 254 275 353 412 474 458 461
Export
(in million tons) 163 191 198 210 287 345 402 382 366
Domestic
(in million tons) 61 49 56 65 66 67 72 76 87
Price (HBA)
(in USD/ton) n.a n.a 70.7 91.7 118.4 95.5 82.9 72.6 60.1
Sources: Indonesian Coal Mining Association (APBI) & Ministry of Energy and Mineral Resources

Indonesian Government’s Benchmark Thermal Coal Price (HBA), Jan. 2012 – Sept. 2016
Month 2012 2013 2014 2015 2016
January 109.29 87.55 81.90 63.84 53.20
February 111.58 88.35 80.44 62.92 50.92
March 112.87 90.09 77.01 67.76 51.62
April 105.61 88.56 74.81 64.48 52.32
May 102.12 85.33 73.60 61.08 51.20
June 96.65 84.87 73.64 59.59 51.87
July 87.56 81.69 72.45 59.16 53.00
August 84.65 76.70 70.29 59.14 58.37
Sept 86.21 76.89 69.69 58.21 63.93
October 86.04 76.61 67.26 57.39
Nov 81.44 78.13 65.70 54.43
Dec 81.75 80.31 69.23 53.51
in USD/ton
Source: Ministry of Energy and Mineral Resources

What Drives this Increase in Indonesian Coal Production and Export?

Coal is the dominating force in power generation. At least 27 percent of the world’s total energy output and more than 39 percent of all electricity is produced by coal-fired power plants due to coal’s abundance, its relatively easy and low-cost extraction, and less expensive infrastructure requirements compared to other energy resources.

Indonesia contains abundant reserves in medium and low-quality coal. These types of coal are competitively priced on the international market (partly due to Indonesia’s low labor wages).

Indonesia’s strategic geographical position towards the giant emerging markets of China and India. Demand for low quality coal from these two countries has skyrocketed as many new coal-fired power plants have been built to supply electricity to their immense populations.

The main export destination countries for Indonesian coal are China, India, Japan and Korea. Coal has a clear importance for Indonesia’s state revenue as the commodity accounts for around 85 percent of mining revenue.

Future Prospects of the Indonesian Coal Mining Sector

The commodities boom of the 2000s generated significant profits for companies engaged in the export of coal. The rise in commodity prices was – to a large extent – triggered by accelerated economic growth in emerging and developing economies. But this profitable situation changed with the outbreak of the global financial crisis in 2008 when commodity prices went down fast.
Indonesia was affected by these external factors as export of commodities (in particular coal and palm oil) account for around 50 percent of total Indonesian exports, thus limiting the country’s GDP growth in 2009 to 4.6 percent (which still represents an impressive number, largely supported by domestic consumption). From the latter half of 2009 until the beginning of 2011 a sharp rebound in global coal prices occurred. However, reduced global economic activity has lessened demand for coal, thus resulting in a downward trend of coal prices starting from early 2011.

Apart from sluggish global economic growth (and the hard landing of China’s economy) reducing demand for commodities, there is also another factor at play. During the lucrative 2000s commodities boom many new coal mining companies were established in Indonesia while existing coal miners raised investment to expand production capacity. This caused a severe supply glut that was exacerbated by coal miners’ eagerness in the years 2010-2013 to produce and sell as much coal as possible – amid low global coal prices – in order to generate revenue and profit.

Despite global awareness to reduce dependency on fossil fuels, developments in renewable energy resources do not show an indication that dependency on fossil fuels (especially coal) will be reduced significantly in the foreseeable future, thus coal remains a vital energy resource. Clean coal technologies in coal mining, however, will gain significance in the future (partly due to commercial relevance) and Indonesia is expected to become heavily involved in that process being a major player in the coal mining sector.
These clean coal technologies focus on the reduction of emissions produced by coal-fired power generation but lack sustained progress yet. Upstream activities connected to coal mining, such as the development of coalbed methane (CBM) reservoirs of which Indonesia contains great potential, has begun to receive attention recently.

Indonesian Government policy will affect the nation’s coal mining industry. To secure domestic supplies, the Indonesian Ministry of Energy and Mineral Resources orders coal producers to reserve a specific amount of their production for domestic consumption. Moreover, the government can use export tax to discourage coal exports. The government aims for more domestic consumption of coal as it wants coal to supply around 30 percent of the country’s energy mix by 2025:

Energy Mix
2011 2025
Oil 50% 23%
Coal 24% 30%
Gas 20% 20%
Renewable Energy 6% 26%
Source: Ministry of Energy and Mineral Resources

Another recent development is that the Indonesian government intends to curb shipments of all raw materials (except for coal), instead requiring the mining sector to add value to the products before export takes place. Initially, the plan was to ban raw mineral exports from 2014 onward. Recently, however, the government has stated that it will be more flexible towards this ban and expressed that some exports can continue under certain conditions. Coal will not be affected by this ban according to government statements made in 2012, thus can continue to be exported without being processed first.

http://www.indonesia-investments.com/business/commodities/coalbed-methane/item269
http://www.indonesia-investments.com/business/commodities/crude-oil/item267
http://www.indonesia-investments.com/business/commodities/natural-gas/item184
http://www.indonesia-investments.com/business/commodities/geothermal-energy/item268


http://www.iclg.co.uk/practice-areas/mining-law/mining-law-2017/indonesia
Indonesia Mining Law 2017
Published: 05/09/2016

Chapter content – Free access
1 Relevant Authorities and Legislation
2 Mechanics of Acquisition of Rights
3 Foreign Ownership and Indigenous Ownership Requirements and Restrictions
4 Processing and Beneficiation
5 Transfer and Encumbrance
6 Dealing in Rights by Means of Transferring Subdivisions, Ceding Undivided Shares and Mining of Mixed Minerals
7 Rights to Use Surface of Land
8 Environmental
9 Native Title and Land Rights
10 Health and Safety
11 Administrative Aspects
12 Constitutional Law
13 Taxes and Royalties
14 Regional and Local Rules and Laws
15 Cancellation, Abandonment and Relinquishment

1 Relevant Authorities and Legislation

1.1 What regulates mining law?

Mining law in Indonesia is governed by the Law on Mineral and Coal Mining No. 4 of 2009, dated 12 January 2009 (“Mining Law”). The Mining Law provides general provisions regarding coal and mineral mining activities in Indonesia. Further, a number of implementing regulations have been subsequently enacted by the Government (both central and regional) as an implementation of the provisions of the Mining Law. The implementing regulations are in the form of, among others, Government Regulations, Minister of Energy and Mineral Resources (“MEMR”) Regulations, and Director General of Mineral and Coal (“DGMC”) Regulations.

The main implanting regulations of the Mining Law are, among others, as follows:
a. Government Regulation No. 22 of 2010 regarding Mining Areas (“GR 22/2010”);
b. Government Regulation No. 23 of 2010, as amended by Government Regulation No. 24 of 2012, Government Regulation No. 1 of 2014 and Government Regulation No. 77 of 2014 regarding the Implementation of Mineral and Coal Business Activity (“GR 23/2010”);
c. Government Regulation No. 55 of 2010 regarding the Fostering and Supervision of Implementation of Mineral and Coal Mining Business Management;
d. Government Regulation No. 78 of 2010 regarding Reclamation and Mine Closures (“GR 78/2010”);
e. MEMR Regulation No. 28 of 2009 as amended by MEMR Regulation No. 24 of 2012 regarding Mining Services;
f. MEMR Regulation No. 34 of 2009 regarding the Domestic Market Obligation;
g. MEMR Regulation No. 02 of 2013 regarding the Supervision of Management Implementation of Mining Business by Provincial and Regency/Municipality Government (“MEMR Regulation 02/2013”);
h. MEMR Regulation No. 27 of 2013 regarding the Procedures for Divestment and Share Pricing and Change of Investment in Mineral and Coal Mining Business (“MEMR Regulation 27/2013”);
i. MEMR Regulation No. 32 of 2013 as amended by MEMR Regulation No. 32 of 2015 regarding Procedures to obtain Mineral and Mining Special Permits;
j. MEMR Regulation No. 1 of 2014 as amended by MEMR Regulation No. 8 of 2015 regarding Increase of Added Value of Minerals through Activities of Processing and Refining/Smelting Domestically (“MEMR Regulation 1/2014”); and
k. MEMR Regulation No. 05 of 2016 regarding the Procedures and Requirements for the Export of Processed and Refined Minerals (“MEMR Regulation No. 5/2016”).

1.2 Which Government body/ies administer the mining industry?

According to the Mining Law, different Government bodies have the authority to administer the mining industry, as follows:

a. The Regent/Mayor has the authority to issue, among others:
(i) a Mining Business Licence (Izin Usaha Pertambangan or “IUP”), if the mining area is located within one regency/city;
(ii) a Mining Services Business Licence (Izin Usaha Jasa Pertambangan or “IUJP”), if the services are rendered within one regency/city;
(iii) a Production Operation IUP specifically for the transportation and sale, if the transportation and sale activities are conducted within one regency/city; and
(iv) a Production Operation IUP specifically for processing and refining, if the mining products to be processed are supplied by the holder(s) of a Production Operation IUP issued by the Regent/Mayor, and/or the location of the processing activity is located in one regency/city.

b. The Governor (head of a province) has the authority to issue, among others:
(i) IUPs, if the mining area crosses the boundaries of regencies/cities in one province based on recommendation of the Regent/Mayor pursuant to the relevant laws and regulations;
(ii) IUJPs, if the services are rendered within two or more regencies/cities in one province;
(iii) Production Operation IUPs specifically for transportation and sale, if the transportation and sale activities are conducted within two or more regencies/cities in one province; and
(iv) Production Operation IUPs specifically for processing and refining, if the mining products to be processed are supplied by the holder(s) of a Production Operation IUP issued by the Governor and/or the holder(s) of a Production Operation IUP for which the mining area(s) is/are located in different regencies/cities, but within one province, and/or the location of the processing activity crosses two or more regencies/cities in one province.

c. The MEMR has the authority to issue, among others:
(i) IUPs, if the mining permit area crosses the boundaries of provinces based on recommendation of the Governors and the Regents/Mayors pursuant to the relevant laws and regulations;
(ii) IUJPs, if the services are rendered within two or more provinces;
(iii) Production Operation IUPs specifically for transportation and sale, if the transportation and sale activities are conducted within the Indonesian territory or for export purposes;
(iv) Production Operation IUPs specifically for processing and refining, if the mining products to be processed are imported and supplied by holder(s) of Special Production Operation IUPs, holder(s) of Production Operation IUPs issued by the MEMR, or holder(s) of Production Operation IUPs for which the mining area is located in different provinces; and
(v) all the above licences, if the applications are submitted by a foreign investment (“PMA”) company (this is an Indonesian entity, the shares of which are owned in whole or in part by foreign shareholders).

The old Mining Law has inherited the form of Coal Contract of Works (“CCOW”) from Coals and Contract of Works (“COW”) for minerals. CCOWs and COWs are different from IUPs. An IUP is a licence issued by the relevant Government. CCOWs and COWs provide rights to mine coal and minerals granted to mining companies based on mining contracts entered into by (central) Government with the mining companies for a certain period.
Pursuant to the Mining Law, all CCOWs and COWs will continue to be valid until their respective expiration, subject to adjustment pursuant to the Mining Law within one year as of the enactment of the Mining Law. However, currently most of the existing CCOWs and COWs are yet to be adjusted, despite the fact that the one-year period for such adjustment has lapsed.

However, pursuant to Law No. 23 of 2014 regarding the Regional Government as amended by Law No. 2 of 2015 on Stipulation of Government Regulation in Lieu of Law No. 2 of 2014 on Amendment to Law No. 23 of 2014 regarding the Regional Government (“Law 23/2014”), the authority of the Regent/Mayor to issue the IUP has been completely removed and only given to the MEMR and the Governor with the following details:

The MEMR has the authority to issue:

a. IUPs for metal minerals, coal, non-metal minerals and rocks, in the following Mining Business Licence Area (Wilayah Izin Usaha Pertambangan or “WIUP”):
i. a WIUP which crosses the boundaries of provinces;
ii. a WIUP which has direct boundary with other countries;
iii. a WIUP which is located on the seabed more than 12 miles from a coastline.
b. IUPs if the applications are submitted by a foreign investment company, which is an Indonesian entity, the shares of which are owned in whole or in part by foreign shareholders pursuant to Law No. 25 of 2007 on Investment;
c. Special Mining Business Licences (Izin Usaha Pertambangan Khusus “IUPK”) for minerals and coal;
d. Production Operation IUPs specifically for processing and refining, if the mining products are supplied or imported from other provinces outside the processing and refining facility, and for a PMA; and
e. IUJPs for domestic investment and for PMAs if the services are rendered throughout Indonesian territory.

The Governor has the authority to issue:
a. IUPs for metal minerals and coal for domestic investment in the WIUP which is located within one province, including on a seabed more than 12 miles from the coastline;
b. IUP for non-metal minerals and rocks for domestic investment in the WIUP which is located within one province, including on the seabed more than 12 miles from the coastline;
c. People’s Mining Rights (Izin Usaha Pertambangan Rakyat “IPR”) for metal minerals, coal, non-metal minerals and rocks within the People’s Mining Business Area;
d. Production Operation IUPs specifically for processing and refining for domestic investment, if the mining products are supplied from the same province; and
e. IUJPs for domestic investment if the services are rendered within the same province.

The provisions in the Mining Law regarding the authority of the Regent/Mayor have not been amended to adjust to the provisions of Law 23/2014 and there are no regulations in the mining sector that have been issued to revoke the authority of the Regent and the Mayor.
However, in practice, the MEMR has issued the Circular Letter No. 04.E/30/DJB/2015 dated 30 April 2015 (“Circular Letter”) which among others states that:
(i) the Regent/Mayor has no authority to administer the minerals and coal sectors as of 2 October 2014; and
(ii) following the enforcement of Law 23/2014, the articles in the Mining Law and its implementing regulations regarding the authority of the Regent/Mayor no longer have binding legal effect.

The Circular Letter has been used as the guidance in administering the mining sectors within the MEMR.

1.3 Describe any other sources of law affecting the mining industry.

The source of law affecting the mining industry in Indonesia consists of the following:
a. The Indonesian 1945 Constitution, as amended (“Constitution”);
b. The Law (Undang-Undang)/Government Regulation in Substitution of Law;
c. Government Regulations;
d. Presidential Regulations;
e. Ministrial (and its sub-divisions) Regulations; and
f. Regional Regulations (Peraturan Daerah).

In theory, some other legal sources may also affect the mining industry, such as decisions of the Constitutional Court and other court decisions.

2 Mechanics of Acquisition of Rights

2.1 What rights are required to conduct reconnaissance?

An Exploration IUP is required to be obtained for a mining company to conduct the reconnaissance phase activity. The Exploration IUP is required not only to conduct the exploration activities, but also the general survey and feasibility study or other reconnaissance activities.

2.2 What rights are required to conduct exploration?

As mentioned in question 2.1 above, an Exploration IUP is required to be obtained for a mining company to conduct exploration activities. An application to obtain an Exploration IUP may only be submitted by legal entities or individuals who have obtained the WIUP through a tender process for metal minerals and coal WIUP conducted by, and through, submission of an application for non-metal minerals and rock WIUP to the MEMR, Governor or Regent/Mayor (based on its authority) (see question 1.2 above).

Metal Minerals and Coal WIUP

Before the Government opens the tender process, the Government has to firstly determine the mining area in consultation with the Parliament and the regional Governments. The mining area is an area which potentially has minerals and/or coal, which is not restricted by the Government’s administration and constitutes part of the national zoning.
Part of the Mining Area will be granted as a Mining Business Area (Wilayah Usaha Pertambangan or “WUP”), which has the data, potential and/or geological information available. Currently, the Government is still in the process of determining the mining area throughout the Indonesian territory. Therefore, to date, the Government has not yet opened any tender process and, consequently, no new IUP under the Mining Law has been issued to date.

Once the winner of the WIUP tender is selected, the Government (depending on its authority) will then issue the Exploration IUP to the winner of WIUP tender for the specific mineral and coal upon application by the tender winner. Further, a mining company which has completed the feasibility study in the exploration stage can apply for a Production Operation IUP. The holder of a Production Operation IUP is permitted to conduct activities of construction, mining, processing and refining/smelting, as well as hauling/transportation and sale.

Non-metal and Rock WIUPs

The application for obtaining non-metal minerals and rock WIUPs is not conducted through a tender process, but through a direct application from the applicant to the Government (depending on its authority) as follows:

the MEMR, with a prior recommendation from the Governor and the Regent/Mayor for the application for a WIUP which crosses boundaries of provinces and/or a seabed which is more than 12 miles from the coastline;
the Governor, with a prior recommendation from the Regent/Mayor for the application for a WIUP which crosses boundaries of regencies/cities within one province and/or a seabed of between 4 and 12 miles from the coastline; and
the Regent/Mayor for the application for a WIUP which is located within one regency/city and/or a seabed up to 4 miles from the coastline.

However, pursuant to Law 23/2014, the authority of the Regent/Mayor to issue the WIUP has been completely removed and is only given to the MEMR and the Governor, as follows:

The MEMR has the authority to issue:
a. Mining Area (Wilayah Pertambangan “WP”) as a part of national spatial plan, which consists of a WUP, People’s Mining Business Area (Wilayah Pertambangan Rakyat “WPR”), State Reserves Area (Wilayah Pencadangan Negara “WPN”) and Special Mining Business Area (Wilayah Usaha Pertambangan Khusus “WUPK”);
b. a WIUP for metal minerals, coal and a Special Mining Business Licenses Area (Wilayah Izin Usaha Pertambangan Khusus “WIUPK”); and
c. WIUP for non-metal minerals and rocks which crosses boundaries of provinces and/or a seabed more than 12 miles from the coastline.

The Governor has the authority to issue a WIUP for non-metal minerals and rocks within one province and/or a seabed more than 12 miles from the coastline.

Please also refer to question 1.2 above.

2.3 What rights are required to conduct mining?

It is required that an IUP is obtained before a mining company can conduct any mining business activity/operation. Please refer to the process described in question 2.2 above for a mining company to obtain a Production Operation IUP.

2.4 Are different procedures applicable to different minerals and on different types of land?

Yes, the procedures will be based on the type of minerals. Please refer to the process described in question 2.2.

With respect to the types of land, the procedure for obtaining land rights would be different based on the type of land concerned. For example, if the mining area is located in (i) a forest area (which is not a protected forest area), the mining company must obtain a borrow used permit from the Ministry of Forestry, (ii) a forest area on which area there is a forest concession, an agreement with the forest concession company is required, (iii) an area which is owned by another party, an agreement with the land owner is required, or (iv) an area which is owned or occupied by another parties or local communities, a land relinquishment must be conducted.

2.5 Are different procedures applicable to natural oil and gas?

Yes. The procedures applicable for natural oil and gas are not within the scope of the Mining Law, and therefore they are different from the procedures for mining.

3 Foreign Ownership and Indigenous Ownership Requirements and Restrictions

3.1 Are there special rules for foreign applicants?

Foreign investors must have an Indonesian vehicle to conduct mining business activities in the form of a PMA company pursuant to Law No. 25 of 2007 on Investment.

Shares in a PMA company are subject to divestment requirements with the following progressive divestment:

Article 97 paragraph 1a of GR 23/2010
If the processing and/or refining activities is conducted by third parties.
Years after commencement of production Minimum divestment (as a percentage of the total shares)
6 20%
7 30%
8 37%
9 44%
10 51%

Article 97 paragraph 1b of GR 23/2010
If the processing and/or refining activities is conducted by the mining company itself.
Years after commencement of production Minimum divestment (as a percentage of the total shares)
6 20%
10 30%
15 40%

Article 97 paragraph 1c of GR 23/2010
In the event the mining company conducts the underground mining method.
Years after commencement of production Minimum divestment (as a percentage of the total shares)
6 20%
10 25%
15 30%

Article 97 paragraph 1d of GR 23/2010
In the event the mining company conducts the underground and open mining method.
Years after commencement of production Minimum divestment (as a percentage of the total shares)
6 20%
8 25%
10 30%

Based on GR 23/2010, a PMA company holding a Production Operation IUP is required to gradually divest its shares based on the table mentioned above (counted from the date of issuance of the Production Operation IUP).
The divestment process will apply to the Indonesian participant(s) in the following sequential order: (i) the Central Government; (ii) the Provincial or the regional/municipality Government; (iii) a State-owned Company (“BUMN”); (iv) a Region-owned Company (“BUMD”); and (v) a national privately-owned company.

3.2 Are there any change of control restrictions applicable?

The change of shares ownership, including the change of control (acquisition), can only be conducted with prior approval from the Government (depending on its authority to issue the IUP).

The MEMR Regulation 27/2013 provides that any change of shareholding in a PMA company can only be conducted if:
the foreign share ownership is not more than 75 per cent for a company holding an Exploration IUP;
the foreign share ownership is not more than 49 per cent for a company holding a Production Operation IUP but the processing and/or refining activities are conducted by third parties;
the foreign share ownership is not more than 60 per cent for a company holding a Production Operation IUP and conducting the processing and/or refining activities; and
the foreign share ownership is not more than 70 per cent for a company holding a Production Operation IUP and conducting: (i) underground mining; or (ii) underground and open pit mining.

Please refer to the table mentioned in question 3.1 above.

3.3 Are there requirements for ownership by indigenous persons or entities?

As elaborated in question 3.1 above, based on GR 23/2010, a PMA company holding a Production Operation IUP is required to gradually divest its shares to be owned by the Indonesian participant(s) (counted from the date of issuance of the Production Operation IUP).

3.4 Does the State have free carry rights or options to acquire shareholdings?

There is no free carry right of the Government to acquire shareholdings in a mining company, including PMA companies.

Please refer to the explanation on options given to the Government or Government-related entities in question 3.1 above in shares divestment stages. The shares of a PMA company to be divested will be offered to the Government, where the central Government has a priority to acquire the offered shares. If the Government indicated that it is not interested in the offered shares or fails to respond to the offer within 60 calendar days, the shares will be offered to BUMNs and BUMDs by auction.

The price for the divestment shares offered to an Indonesian participant shall be the replacement cost for the investment of the Production Operation IUP; such cost will be calculated from the exploration phase.

3.5 Are there restrictions on the nature of a legal entity holding rights?

The Mining Law provides three categories of mining licences as follows:

IUPs, which can be granted to (i) business entities (including State-owned, region-owned companies and PMA companies), (ii) cooperatives (koperasi), and (iii) Indonesian individuals;
IPRs which can be granted to (i) Indonesian individuals for a maximum 1 (one) hectare, (ii) community groups (kelompok masyarakat) for a maximum 5 (five) hectares, and (iii) cooperatives (koperasi) for a maximum 10 (ten) hectares; and
Special Mining Business Licences(Izin Usaha Pertambangan Khusus or “IUPK”), which can be given to Indonesian legal entities, either in the form of State-owned entities, region-owned entities, or private entities. State-owned entities and region-owned entities shall have priority in obtaining the IUPK.

4 Processing and Beneficiation

4.1 Are there special regulatory provisions relating to processing and further beneficiation of mined minerals?

The Mining Law and GR 23/2010 provide that mining companies are obligated to conduct processing and refining activities of their (ore) mining products domestically. In other words, mining companies can only export the mining products which have been processed and/or refined in Indonesia. However, since currently Indonesia does not have sufficient smelting or processing facilities to process or refine most mineral products in Indonesia, the export of certain mineral products is still permitted, provided that the exporter pays progressive export tax and can meet certain requirements stated in the following regulations:

GR 23/2010;
Minister of Trade Regulation No. 119/M-DAG/PER/12/2015 on the Provision for Exporting Mining Products Resulting from Processing and Refining;
Minister of Trade Regulation No. 06/M-DAG/PER/2014 as amended by Minister of Trade Regulation No. 10/M-DAG/PER/2/2016 on Procedures for Determining the Export Benchmark Price of Processed Mining Product Subject to Export Duties (“MOT Regulation No. 6/2014”);
Minister of Trade Regulation No. 39/M-DAG/PER/7/2014 as amended by Minister of Trade Regulation No. 49/M-DAG/PER/8/2014 on the Provisions for Exporting Coal and Coal Products;
Minister of Trade Regulation No. 04/M-DAG/PER/1/2015 as amended by Minister of Trade Regulation No. 67/M-DAG/PER/8/2015 on Provisions to Use a Letter of Credit for Exporting Certain Commodities (“MOT Regulation No. 4/2015”);
Minister of Trade Regulation No. 26/M-DAG/PER/3/2015 Tahun 2015 on Specific Provisions on the Implementation of Using a Letter of Credit for Exporting Certain Commodities;
Bank Indonesia Regulation No. 16/10/PBI/2014 dated 14 May 2014 as amended by Bank Indonesia Regulation No. 17/23/PBI/2015 dated 23 December 2015 on the Receipt of Export Proceeds and Withdrawal of Foreign Exchange from External Debt (Offshore Borrowings) (“BI Regulation No. 16/2014”);
MEMR Regulation No. 1/2014;
MEMR Regulation No. 5/2016;
DGMC Regulation No. 714.K/30/DJB/2014 Tahun 2014 on Procedures and Requirements to Grant a Recommendation as a Registered Exporter of Coal;
Minister of Industry Regulation No. 15/M-IND/PER/3/2014 Tahun 2014 on Recommendation for Registered Exporters of Processed and Purified Mining Products; and
Minister of Finance Regulation No. 75/PMK.011/2012 as amended by the Minister of Finance Regulation No. 128/PMK.011/2013, No. 6/PMK/011/2014, No. 153/PMK.011/2014 and No. 136/PMK.010/2015 on the Stipulation of Export Goods that Are Subject to Export Duty and its Tariff (“MOF Regulation No. 75/2012”).

4.2 Are there restrictions on the export of minerals and levies payable in respect thereof?

In brief, the regulations referred to in question 4.1 provide the following provisions:

Ferrous mining companies (holders of Contract of Work/Production Operation IUPs) which have conducted ferrous mining activities can export in certain quantities upon fulfillment of the minimum processing and refining/smelting specifications, as provided in attachment 1 of MEMR Regulation No. 1/2014.
It is not permitted to export raw materials/ores or unprocessed minerals.
Certain minerals (i.e. nickel, bauxite, ore, gold, silver, and chromium) can only be exported after they have been purified with the minimum content, as specified in Attachment 1 of MEMRRegulation No. 1/2014. The minimum content of these minerals is high (95 per cent or above).
Certain other minerals (e.g. copper, iron sand, iron ore, zinc, lead, and manganese) can only be exported after they have been processed or purified with the minimum content, as specified in Attachment 1 of MEMRRegulation No. 1/2014, three years as of the issuance of MEMRRegulation No. 1/2014. The minimum content of these minerals is significantly reduced from the requirements under the previous regulation on the same subject. The concentrates of these minerals are permitted to be exported.
MOT Regulation No. 6/2014 set out the procedures for determining Export Benchmark Prices (Harga Patokan Ekspor or “HPE”) for processed mining produces. HPE is the basis for the Minister of Finance to calculate and impose export duties.
MOT Regulation No. 4/2015 requires the exporter to use a Letter of Credit (“L/C”) as a mandatory payment instrument when exporting certain commodities (i.e. mining products), for which the price stated on the L/C must at least be equivalent to the global market price for the relevant exported commodities. Pursuant to Article 3 of MOT Regulation 4/2015, payment under an L/C must be made to a domestic foreign exchange bank (bank devisa).
Under BI Regulation No. 16/2014, the receipt of the Export Exchange (Devisa Hasil Eksport or “DHE”) is obligated to be reported at the latest by the end of the third month after the registration month of the Export Declaration (Pemberitahuan Eksport Barang or “PEB”).
Based on MOF Regulation No. 75/2012, Mining companies which export minerals, as referred to in point b., above are subject to a progressive export duty tariff. The export duty tariff will gradually increase per semester, starting at 20 per cent (or 25 per cent for copper) in the first half of 2014 and rising to 60 per cent in the second half of 2016.
MOF Regulation No. 75/2012 also stipulates that export tariffs on processed mineral products for exporters that are involved in construction of refining/smelting facilities or cooperate in the construction of refining/smelting facilities shall be grouped by the progress level of mineral refining/smelting facility construction on an absorption costing percentage basis.

Further, in order to conduct export activities, exporters of mineral products must obtain a Recommendation from the DGMC and/or an acknowledgment as a Registered Exporter of Mining Products (ET – Produk Pertambangan), and/or Export Approval from the Ministry of Trade.

5 Transfer and Encumbrance

5.1 Are there restrictions on the transfer of rights to conduct reconnaissance, exploration and mining?

GR 23/2010 provides that the holder of an IUP and IUPK is not permitted to transfer its IUP and IUPK to another party, except to a legal entity where 51 per cent or more of the shares are owned by such holder of the IUP and IUPK.

5.2 Are the rights to conduct reconnaissance, exploration and mining capable of being mortgaged to raise finance?

The IUP cannot be imposed with a security right to secure finance. Security rights can, however, be created over the assets of the IUP holder, such as land, building, equipments, stocks, receivables, as well as other contractual security rights, to secure finance. In addition, a security right can also be created over shares of a mining company to secure finance.

6 Dealing in Rights by Means of Transferring Subdivisions, Ceding Undivided Shares and Mining of Mixed Minerals

6.1 Are rights to conduct reconnaissance, exploration and mining capable of being subdivided?

The rights to conduct the mining activities stated in the IUP are not separable or transferable. An IUP holder may, however, assign a mining services company which holds an IUJP to perform certain mining activities, among others (i) exploration (in the framework of consultation, plan, execution, and/or equipment testing) and (ii) mining but limited to stripping overburden (including excavation, loading and overburden removal).

6.2 Are rights to conduct reconnaissance, exploration and mining capable of being held in undivided shares?

The rights to conduct reconnaissance, exploration and mining under the IUP are attached to the IUP holder. The IUP holder can be in the form of a PMA (joint venture) company. Indonesian law only recognises the IUP holder as the party that has rights to conduct reconnaissance, exploration and mining.

6.3 Is the holder of a primary mineral entitled to explore or mine for secondary minerals?

Pursuant to Article 40 of the Mining Law, the IUP shall only be granted for 1 (one) type of mineral. However, an IUP holder that discovers other minerals within its mining area shall be given a priority right to mine such discovered mineral(s). The IUP holder that wishes to mine such minerals must file an application for a new IUP to the relevant Government authority.

6.4 Is the holder of a right to conduct reconnaissance, exploration and mining entitled to exercise rights also over residue deposits on the land concerned?

The law is silent on the rights over residue deposits on the land used for mining activities. However, the IUP holder is still entitled to exercise rights over such residue deposits during the period of the IUP. In the event the period of the IUP has lapsed, the IUP holder shall no longer be entitled to exercise rights over such residue deposits.

6.5 Are there any special rules relating to offshore exploration and mining?

The prevailing law and regulations on mining do not provide different rules or procedures for offshore exploration and mining. The Mining Law and GR 22/2010 only provide a division of authorities issuing IUPs. For mining areas located on the seabed (i) which exceed 12 (twelve) miles from the coastline, the IUP shall be granted by the MEMR, (ii) between 4 (four) miles and 12 (twelve) miles from the coastline, the IUP shall be granted by the Governor, and (iii) less than 4 (four) miles from the coastline, the IUP shall be granted by the Regent/Mayor.

In addition to the above, the operation and ownership of vessels (including vessels used for offshore mining activities) must comply with the requirement of Law No. 17 of 2008 on Shipping, which stipulates, among others, that the vessel operation must be based on a specific shipping licence issued by the Minister of Transportation. The majority foreign share ownership of a PMA company holding a vessel is restricted, as the shares in this company must be majority (51 per cent or more) owned by local shareholder(s).

7 Rights to Use Surface of Land

7.1 What are the rights of the holder of a right to conduct reconnaissance, exploration or mining to use the surface of land?

Unlike in other jurisdictions, Indonesian land titles do not extend beneath the surface of the land and therefore the land title holder has no right to conduct mining activities on the land in the absence of an IUP. On the other hand, Article 134 of the Mining Law states that the right of IUP holders does not include the surface of land.

On the right of an IUP holder over the surface of land, the Mining Law does not stipulate a requirement for the IUP holder to acquire ownership of the land over which the mining will be conducted under the valid IUP. The Mining Law imposes an obligation on IUP holders to enter into a “settlement” with people holding land titles within the mining area.
The purpose of this “settlement” is to compensate the land title holders for the disruption to their utilisation of the surface of land caused by the mining activities. A settlement only needs to be reached with land title holders in the mining areas which are actually to be affected by mining activities. Settlement of land titles may be conducted in stages based on the needs for land by the IUP holder. There is no requirement to compensate every land title holder whose land is overlapping with the mining area under the IUP.

Although it is not a requirement, mining companies sometimes choose to acquire land title ownership of the underlying land, particularly for strategic land areas. This is to avoid any dispute in the future in respect of whether compensations have been adequately provided and to provide legal certainty on the right to conduct activities in such land areas.

7.2 What obligations does the holder of a reconnaissance right, exploration right or mining right have vis-à-vis the landowner or lawful occupier?

Please refer to our explanation in question 7.1 above.

7.3 What rights of expropriation exist?

IUP holder and the State do not have the right of expropriation for mining activities. The IUP holder using the land for mining activities must conduct a settlement with the land title holders as explained in question 7.1 above.

8 Environmental

8.1 What environmental authorisations are required in order to conduct reconnaissance, exploration and mining operations?

The prevailing Environmental Law (Law No. 32 of 2009 on Environmental Protection and Management) stipulates the following criteria of business/activities which may have a substantial environmental impact:

the change of form of land and landscape;
the exploitation of natural resources, whether renewable or non-renewable;
the processes and activities which may potentially cause environmental pollution, and/or damage, and squandering and degradation of natural resources in their utilisation;
the processes and activities which may result in an effect on the natural environment, artificial environment and socio-cultural environment;
the processes and activities which will affect the preservation of natural resources conservation areas and/or cultural heritage protection;
the introduction of types of plantations, animals and micro-organisms;
the production and utilisation of biological and non-biological resources;
the activities which are high-risk, and/or affect national defence; and/or
the application of technology which may potentially affect the environment.

Any business/activity which meets the above criteria must prepare AMDAL documents (Analisis Mengenai Dampak Lingkungan or Environmental Impact Analysis) which consist of:

Term of Reference (Kerangka Acuan). This Term of Reference shall be the basis on drafting ANDAL and RKL-RPL;
an Environmental Impact Assessment (Analisis Dampak Lingkungan or “ANDAL”);
an Environment Management Plan (Rencana Pengelolaan Lingkungan Hidup or “RKL”); and
an Environmental Monitoring Plan (Rencana Pemantauan Lingkungan or “RPL”).

In relation to the mining activities, the Mining Law stipulates that every mining company that applies for an IUP must attach AMDAL documents or UKL/UPL (Upaya Pengelolaan Lingkungan or Environmental Management Efforts Report)/(Upaya Pemantauan Lingkungan or Environmental Monitoring Efforts Report) as one of the requirements.

Furthermore, Government Regulation No. 27 of 2012 regarding Environmental Permits also provides that every business and/or activities that are required to have AMDAL documents are required to have an Environmental Permit from the relevant Government.

8.2 What provisions need to be made for the closure of mines?

Under GR 78/2010, the IUP holder is required to conduct reclamation and post-mining activities. The IUP holder must: (i) formulate a reclamation plan on the basis of environmental documents in accordance with the provisions of laws and regulations in the field of environmental protection and management; and (ii) complete a feasibility study prior to the submission of the application for approval of reclamation and post-mining from the relevant mining authority.

In addition, the holder of a Production Operation IUP is required to provide: (i) a reclamation plan for 5 years; (ii) a post-mining plan; (iii) a reclamation guarantee in the form of a joint account or deposit in a State bank, a bank guarantee or accounting’s reservation; and (iv) a post-mining guarantee in the form of a deposit in a State bank. The guarantee provided will not, however, waive the obligation of the holder of a Production Operation IUP to conduct reclamation and post-mining activities.

8.3 What are the closure obligations of the holder of a reconnaissance right, exploration right or mining right?

As mentioned above, every IUP holder is obligated to conduct reclamation and post-mining activities. Upon the closure of mining operations, the mining company must immediately conduct the reclamation and post-mining activities based on the reclamation and post-mining plans which have been approved by the mining authority.

8.4 Are there any zoning requirements applicable?

Yes, there is a zoning requirement which is regulated under Law No. 26 of 2007 concerning the Spatial Plan. In general, the Spatial Plan is divided based on the system, main function of the area, administrative territory, the area’s activity and the strategic value of such area. The national Spatial Plan is issued by the Government and shall be applicable for a period of 20 years but it may be evaluated every 5 years.

In relation to the Mining Area, the Spatial Plan is stipulated by the MEMR after coordinating with the Governor and Regent/Mayor, and after consulting with the Parliament. GR 22/2010 stipulates that the mining area is an area which has mineral and/or coal potentials, either on the surface land or underground, which is located inside the mainland or on the seabed, for the need of mining activities. GR 22/2010 also provides the main criteria to be fulfilled for an area to be categorised as a mining area, as follows:

having an indication of mineral, and/or coal bearing formations; and
having potential of mineral resources in solid and/or liquid form.

Please refer to our explanation on WIUP above.

9 Native Title and Land Rights

9.1 Does the holding of native title or other statutory surface use rights have an impact upon reconnaissance, exploration or mining operations?

As explained in section 7 above, the IUP holder is required to resolve the agreement to relinquish and settle the land that will be used for mining operations with the land title holders. In practice, however, the settlement process will need to be made not only with the land title holders, but also with those occupants or (local) people holding certain “un-certificated” land or community land title.

In practice, most mining companies will only relinquish the land (pembebasan tanah) for parts of the mining area that will be used for the actual mining and related activities. For example, a mining company may have an area of 1,000 hectares under its IUP, but the area where it actually conducts mining operations and other activities (roads, housing, etc.) may only be for an area of 500 hectares; the mining company will then only process the land relinquishment for such 500 hectares. There is no obligation of the mining company to relinquish the remaining 500 hectares that will not be used for mining activities.

As explained, a mining company is not required to relinquish the whole area under the IUP, and the relinquishment process can be done in stages, depending on the needs of the company.

10 Health and Safety

10.1 What legislation governs health and safety in mining?

In general, provisions of health and safety in mining are regulated as follows:

the Mining Law and its implementing regulations;
Law No.1 of 1970 regarding Safety;
Staatsblad No. 341 of 1930 regarding Mining Occupational Safety Regulations;
Government Regulation No. 19 of 1973 regarding Admission and Supervision of Occupational Safety in the Field of Mining;
Ministry of Mining and Energy (now MEMR) Decree No. 555.K/26/M.PE/1995 regarding Occupational Safety and Health in General Mining;
MEMR Regulation No. 38 of 2014 on Implementation of Safety Management System in Mineral and Coal Mining; and
Head of Nuclear Supervision Board Decree No.12/Ka-BAPETEN/VI-99 regarding Provisions of Mining Occupational Safety and Purifying of Radioactive Extractives.

10.2 Are there obligations imposed upon owners, employers, managers and employees in relation to health and safety?

There are some obligations imposed upon employers, employees and people close to the mining area in relation to health and safety, among others:

Mining companies shall comply with the occupational safety and health requirements.
Mining companies are obligated to provide mining equipment and appliances, self-protection devices, facilities and costs needed for the implementation of this regulation.
Mining companies shall appoint a Head of Mining Technical (“Kepala teknik Tambang”).
Mining companies shall provide proper accommodation close to the mining area (site).
Mining companies are required to provide mining books.
The Head of Mining Technical is required to provide: (i) situation map; (ii) mining plan map; (iii) geological map; and (iv) map of the mining area.
The Head of Mining Technical shall conduct mining inspections.
The Head of Mining Technical shall provide training for its employees.
Employees are obligated to obey the regulations on occupational health and safety provided.
Employees shall carry out their work in accordance with the guidelines.
Employees shall immediately report to his/her supervisor, in a situation that potentially cannot be handled by him/her.
Mining companies shall implement the Safety Management System of Mineral and Coal Mining (Sistem Manajemen Keselamatan Pertambangan Mineral dan Batubara or “SMKP Minerba”), which includes the following elements:

– Policy;
– Planning;
– Organization and Personnel;
– Implementation;
– Evaluation and Follow-up;
– Documentation; and
– Management review.

People close to the mining area are prohibited from entering the mining area, unless approval has been granted.

11 Administrative Aspects

11.1 Is there a central titles registration office?

The Mining Law does not recognise a “central title registration office”. However, the DGMC is mandated by Article 11 of MEMR Regulation No. 02/2013 to announce a Clear and Clean IUP List (“CnC List”) and issue a Clear and Clean Certificate (“CnC Certificate”) for IUP holders.

11.2 Is there a system of appeals against administrative decisions in terms of the relevant mining legislation?

Yes there is. The appeal system towards administrative decisions must follow the judicial proceedings of the State Administrative Court (Pengadilan Tata Usaha Negara) as stipulated under Law No. 5 of 1986 concerning the State Administrative Judicial System, as lastly amended by Law No. 51 of 2009. A State Administrative Decision that can be appealed to the State Administrative Court must complete the following 4 (four) elements, as follows:

a written decision;
issued by a State administrative institution;
issued based on specific provisions in the prevailing laws and regulations; and
the decision is valid, final and caused a legal implication to a specific person or entity.

If the decision falls under the above elements (examples: licences, permits, etc.), the appeal of an administrative dispute can be taken at the State Administrative Court and State Administrative High Court. The highest judicial power, within the sphere of the State Administrative Judicial System, is vested in the Supreme Court as the highest State court. If the claim is upheld by the court, the court may invalidate and instruct the Government to revoke the decision concerned.

12 Constitutional Law

12.1 Is there a constitution which has an impact upon rights to conduct reconnaissance, exploration and mining?

There is no specific clause in the Constitution which has a direct impact upon the right to conduct reconnaissance, exploration and mining. The Constitution does however state, in Article 33(3), as a general provision that the land and waters as well as the natural riches therein are controlled by the State and exploited for the greatest benefit of the people.

12.2 Are there any State investment treaties which are applicable?

Yes there are. In an endeavour to attract foreign investment, Indonesia has concluded a number of bilateral and regional investment treaties, both with developed and developing countries. The agreements contained in the treaties in general contain similar provisions for the purpose of investment protection. The treaties usually provide general investment protections, such as issues on nationalisation, capital repatriation, subrogation, dispute settlement, etc.
However, there are treaties that expressly cover investment protection for specific business sectors. For example: in the agreement between the Government of the Republic of Indonesia and the Government of the Republic of Singapore on the Promotion and Protection of Investments, dated 16 February 2005, which has been ratified by Presidential Regulation of No. 6 of 2006, dated 1 February 2006, the term ‘investments’ shall mean any kind of assets invested by investors of one Contracting Party in the territory of the other Contracting Party, in conformity with the laws and regulations of the latter, including, though not exclusively:

movable and immovable property as well as other property rights, such as mortgages, liens or pledges;
shares, stocks, debentures and similar interest in companies;
claims to money or to any performance under contract which has an economic value;
intellectual property rights (including, but not limited to, copyrights and neighbouring rights, trademarks, patents, industrial design, layout design of integrated circuit and right in plants varieties) know how, trade secrets, trade names and goodwill; and
business concession conferred by law or under contract, including concessions to search for, or exploit, natural resources.

In the Investment Support Agreement between the Government of the Republic of Indonesia and the Government of the United States of America, dated 13 April 2010, which has been ratified by Presidential Regulation of No. 48 of 2010, dated 19 July 2010, there is no specific sector referred in the Agreement. The term ‘Investment Support’ refers to any debt of equity investment, any investment guarantee and any investment insurance, reinsurance or coinsurance which is provided by the issuer (or, in the case of coinsurance, is provided by the issuer and commercial insurance companies (“Coinsurers”) under coinsurance arrangements under which the issuer acts both for itself and for such Coinsurers) in connection with a project in the territory of the Republic of Indonesia.

13 Taxes and Royalties

13.1 Are there any special rules applicable to taxation of exploration and mining entities?

Pursuant to the Mining Law, there is no special rule applicable to taxation of exploration and mining companies. Every Indonesian mining company shall pay the taxes within the authority of the Government under the general laws and regulation on taxation. The taxes imposed on mining companies are among others (i) Income Tax, which is governed under Law No. 7 of 1983, which has been last amended by Law No. 36 of 2008 (“Law 36/2008”), and (ii) Value-Added Tax, which is governed under Law No. 8 of 1983, which has been last amended by Law No. 42 of 2009.

However, there are still various mining companies which are subject to a certain tax regime governed by CCOW and COW. The type of CCOW and COW are differentiated based on the year of execution of such CCOW. The tax provisions in CCOW and COW generally overrule the normal tax regulations.

The table below sets out information on the income tax that is imposed for services provided in every step of the mining activities under Law 36/2008: (i) Ministry of Finance Regulation No. 141/PMK.03.2015 concerning the Type of other Service Referred to in Article 23 Paragraph (1) Letter C Point 2 of Law 36/2008; and (ii) Government Regulation No. 51 of 2008 on Income Tax on Income from Construction Services, which has been amended by Government Regulation No. 40 of 2009:

Mining Phase Income Tax Percentage of Tax Imposed
General survey
Article 23, or 2%
Article 26 20%

Exploration
Article 23, or 2%
Article 26 20%

Feasibility study
Article 23 2%

Construction
Article 4 paragraph 2
2% (if construction engineering is executed by service providers having the qualification of small-scale business)
4% (if construction engineering is executed by service providers not having qualifications)
3% (if construction engineering is executed by service providers other than those which have the qualifications of a small-scale business or not having qualifications as mentioned above)
4% (if construction planning or supervision is executed by service providers which have business qualifications)
6% (if construction planning or supervision is executed by service providers which do not have business qualifications)

Exploitation
Article 23, or 2%
Article 26 20%

Reclamation
Article 23, or 2%
Article 26 20%

The income tax of Article 23 is imposed if the company which provides the aforementioned services is a resident taxpayer or a permanent establishment in Indonesia. However, if the company which provides the services is a non-resident taxpayer, then it will be responsible for paying income tax under Article 26. The rate of the income tax of Article 26 mentioned above may be affected by a relevant applicable tax treaty.

Pursuant to Law No. 28 of 2009 on Regional Taxes and Retributions, a mining company exploiting non-metal and rock materials is subject to regional tax, the rate of which will depend on the regional Government regulation, but may not exceed 25 per cent of the sale value of the material.

Furthermore, the land where any mining company conducts its business activities is subject to Land and Building Tax. This is governed by Law No. 12 of 1985 on Tax on Land and Buildings, which has been amended by Law No. 12 of 1994 (“Law 12/1994”), and the Directorate General of Taxation Regulation No. PER-32/PJ/2012 concerning the Procedure of Imposing Land Building Tax on the Mining Sector for Mineral and Coal Mining.
The rate of said Land and Building Tax is 0.5 per cent calculated from the Sale Value of the Tax Object (Nilai Jual Objek Pajak or “NJOP”). The NJOP is defined as the average price obtained from the sale and purchase transaction reasonably occurring, and in the event there is no sale and purchase transaction, the NJOP shall be determined by comparing other prices and objects of the same type or the new acquisition value, or a replacement NJOP.

13.2 Are there royalties payable to the State over and above any taxes?

Yes, there are royalties payable to the State. In accordance with Article 128 (4) of the Mining Law, mining companies shall pay for: (i) Dead Rents; (ii) Exploration Royalties; (iii) Production Royalties; and (iv) compensation for access to data/information other than taxes. Said royalties are stipulated under Government Regulation No. 9 of 2012 concerning Non-Tax State Revenue under the MEMR.

The table below sets out some information on the tariffs:

Non Tax State Revenue Unit Tariff
Revenue from service for the provision of a mineral and coal information data system:
Service for the provision and issuance of a WIUP:
a) inquiry into mining area information
Per 15 minutes
Rp. 200,000

b) area reservation and printing of a non-metal mineral WIUP map
Per WIUP
Rp. 10,000,000 – Rp. 50,000,000
(depends on the acreage)

c) area reservation and printing of rock WIUP map
Per WIUP
Rp. 5,000,000 – Rp. 30,000,000
(depends on the acreage)

Service for the printing of a mining area information map.
Per sheet
Rp. 1,000,000 – Rp. 3,000,000
(depends on the size and the type)

Revenue from dead rent for metal mineral and coal mining business:
IUP and IUPK of metal mineral and coal exploration
Per hectare/annum
US$ 2

IUP and IUPK of metal mineral and coal production operation
Per hectare/annum
US$ 4

Rent for smallholder lighten (“IPRI”):

a) Non-metal minerals and rocks
Per hectare/annum
US$ 1

b) Metal minerals and coal
Per hectare/annum
US$ 2

Revenue from Royalties.
(Please note that the royalty percentage depends on the commodity)

Coal (open pit) with calorific value (Kkal/kg, air dried basis):
a) = 5,100
Per ton
3% of the selling price

b) 5,100-6,100
Per ton
5% of the selling price

c) > 6,100
Per ton
7% of the selling price

Coal (underground) with calorific value (Kkal/kg, air dried basis):
a) = 5,100
Per ton
2% of the selling price

b) 5,100-6,100
Per ton
4% of the selling price

c) > 6,100
Per ton
6% of the selling price

Gold
Per kilogram
3.75% of the selling price

Nickel Ore
Per ton
5% of the selling price

Diamonds
Per carat
6.50% of the selling price

The tariffs for royalties and their calculation depend on the type of minerals.

14 Regional and Local Rules and Laws

14.1 Are there any local provincial or municipal laws that need to be taken account of by a mining company over and above National Legislation?

The Mining Law stipulates that the provincial and regency/municipality Governments are allowed to make their own regional regulations. However, such regional regulations shall be made in accordance with the prevailing laws and regulations.

14.2 Are there any regional rules, protocols, policies or laws relating to several countries in the particular region that need to be taken account of by an exploration or mining company?

To our knowledge, there are no regional rules, protocols, policies or laws relating to several countries, in the particular ASEAN region, that need to be taken into account by an exploration or mining company.

15 Cancellation, Abandonment and Relinquishment

15.1 Are there any provisions in mining laws entitling the holder of a right to abandon it either totally or partially?

No, there are no specific provisions in the Mining Law which entitles the holder of a mining right to abandon the mining right. However, under GR No. 23/2010, an IUP holder may at any time submit an application to the relevant authority for partial reduction of the mining area. For the CCoW and CoW, usually there is a provision in the contract which gives the contractor the rights to relinquish all or part of Mining Area at any time and from time to time during the term of the contract, subject to a written application to the MEMR.

15.2 Are there obligations upon the holder of an exploration right or a mining right to relinquish a part thereof after a certain period of time?

No, there are no obligations for the exploration right of the IUP holder to relinquish a part of its right. However, the Mining Law provides a limitation on the area for different stages and different types of IUP. For example, the holder of metal mineral Exploration IUP shall be authorised to have a WIUP of a maximum of 100,000 hectares, while the metal mineral Production Operation IUP holder shall only be authorised to have a WIUP of a maximum of 25,000 hectares. Further, the holder of coal Exploration IUP shall be authorised to have a WIUP of a maximum of 50,000 hectares while for the later stage, which is the coal Production Operation IUP, it shall only be authorised to have a WIUP of a maximum of 15,000 hectares.

15.3 Are there any entitlements in the law for the State to cancel an exploration or mining right on the basis of failure to comply with conditions?

Yes, there are. The Mining Law gives the relevant authority (the issuer of the mining licence) the right to revoke the mining rights or licences in the event of non-compliance with any of the provisions stipulated in the Mining Law and/or obligations stated in the mining licence. In practice, the Government will not automatically revoke the mining licence if there in the event of non-compliance with the Mining Law and/or obligations stated in the mining licence, the imposition of sanction usually will be conducted gradually from the lightest sanction to the most severe.
The sanctions generally begin with a warning letter issued by the relevant authority to the holder of the mining licence, which will be followed up with their mining licence being suspended; and if after the foregoing sanctions have been imposed the violation or non-compliance still continues, then as a last resort the authority will revoke the mining licence.


http://www.proactiveinvestors.com.au/companies/news/167190/zamia-metals-to-acquire-indonesian-coal-mine-167190.html
Zamia Metals to acquire Indonesian coal mine
13:00 11 Oct 2016

Zamia Metals Ltd (ASX:ZGM) has entered into a binding agreement to acquire a company that owns a mining permit for a coal mine on the island of Central Kalimantan in Indonesia.


Zamia Metals Ltd to acquire Indonesian coal mine

The purchase price of $24.3 million is to be affected by the allotment of 607.5 million ordinary shares in Zamia (post a 1 for 10 consolidation) at an issue price of $0.04 per share.

Zamia has also raised $250,000 in a debt facility which will be converted into ordinary shares that will provide working capital to be used primarily to meet costs related to the transaction.

The mining permit is located in the Barito Basin on the island of Borneo in the coking coal province of Central Kalimantan, which accounts for over half of the known coal reserves in Indonesia.

The geological sequence in the Barito Basin comprises mostly shallow shelf marine deposits, although terrestrial sequences containing coal occur at the base and top of the basin.

Currently, exploration activities have only focused on an area of 306 hectares located in the northwest corner of the total permit area of 4,798 hectares.

This explored area has substantial mapped coal outcrops and hence was the easiest target for exploration.

The remaining area of the project remains relatively unexplored and could provide a substantial upside.

Zamia is also undertaking a capital raising with priority to existing shareholders to raise at least $2.5 million.

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The information on this Site is of a general nature only. It does not take your specific needs or circumstances into consideration, so you should look at your own financial position, objectives and requirements and seek financial advice before making any financial decisions. You acknowledge and understand that neither the Company, its related bodies corporate, the information providers or their affiliates will advise you personally about the nature, potential value or suitability of any particular security, portfolio of securities, transaction, investment strategy, or other matter. You should read our FSG and any other relevant disclosure documents and if necessary seek persona advice prior to making any investment decision.

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http://www.indonesia-investments.com/news/todays-headlines/indonesia-s-coal-price-continues-to-soar-in-2nd-half-of-2016/item7411
Indonesia’s Coal Price Continues to Soar in 2nd Half of 2016
05 December 2016

Coal Industry, Coal Price, ADRO, Coal Production, China, Coal Mining, Coal

Indonesia’s benchmark thermal coal price (Harga Batubara Acuan, or HBA) – a monthly price that is set by Indonesia’s Energy and Mineral Resources Ministry, and which is based on domestic and international coal indices – continued its impressive rally. In December 2016 the HBA was set at USD $101.69 per metric ton, up nearly 20 percent from the HBA in the preceding month. It is now at its highest level since May 2012. Moreover, price growth between November and December was the steepest monthly rise ever in the history of the HBA.

Sujatmiko, spokesman for Indonesia’s Energy and Mineral Resources Ministry, said the sharply rallying coal price is caused by the combination of sliding coal production in combination with rising coal demand. Also, higher crude oil prices – boosted by the recent agreement among OPEC countries to curtail oil output – have a positive impact on commodity prices.

Sliding global coal production particularly stems from China that decided to streamline its coal industry by limiting coal production, hence combating the local oversupply and making the country’s coal policies in line with the Paris Climate Agreement. Secondly, coal output in other coal producing nations (including Indonesia) has declined as the prolonged fall in coal prices between the years 2011 and mid-2016 caused financial troubles for many coal miners and therefore theses companies had to reduce – or completely shut down – operations in 2015 and 2016.

Meanwhile, Hendra Sinadia, Deputy Executive Director of the Indonesian Coal Mining Association (APBI), adds that not only coal production has fallen, but coal demand has increased ahead of the year-end due to the winter season.

However, we should not become too enthusiastic about the ongoing coal price rally. There is the possibility that China will loosen its policies in the coal mining sector and thus coal production can rise rapidly in 2017 thereby pushing coal prices lower. Moreover, a lower coal price is important for the coal-fired power plants in China.

Read more: Indonesia’s Coal Price Soaring, Reason for Euphoria? Or Not?

Earlier this year, Chinese authorities announced it would cut working days on coal mines from 330 days to 276 days in April 2016 in an effort to remove excess capacity from the industry. Moreover, it announced to close more than 1,000 coal mines and slash coal production by 500 million tons in the next five years.

Several days ago listed Indonesian coal miner Adaro Energy announced it reached an agreement to supply coal to the Electricity Generating Authority of Thailand (EGAT) for the next two decades as well as selling a stake in its main mining subsidiary to Thailand’s state-owned entity. EGAT will acquire an 11.53 percent stake in Adaro Indonesia through its subsidiary for an estimated USD $325 million. This deal will help Adaro Energy to capture long-term demand for coal and give it the financial strength that is required to cope with rougher times in the coal market.

Read more: Overview & Analysis of Indonesia’s Coal Mining Sector

Now the HBA for December is known, we can also calculate the average HBA coal price for full-year 2016: USD $61.84 per ton, slightly higher compared to the average of USD $60.13 per ton in full-year 2015.

Indonesian Government’s Benchmark Thermal Coal Price (HBA):
Month 2012 2013 2014 2015 2016
January 109.29 87.55 81.90 63.84 53.20
February 111.58 88.35 80.44 62.92 50.92
March 112.87 90.09 77.01 67.76 51.62
April 105.61 88.56 74.81 64.48 52.32
May 102.12 85.33 73.60 61.08 51.20
June 96.65 84.87 73.64 59.59 51.87
July 87.56 81.69 72.45 59.16 53.00
August 84.65 76.70 70.29 59.14 58.37
Sept 86.21 76.89 69.69 58.21 63.93
October 86.04 76.61 67.26 57.39 69.07
Nov 81.44 78.13 65.70 54.43 84.89
Dec 81.75 80.31 69.23 53.51 101.69
in USD/ton
Source: Ministry of Energy and Mineral Resources

Indonesian Production, Export, Consumption & Price of Coal:
2007 2008 2009 2010 2011 2012 2013 2014 2015
Production
(in million tons) 217 240 254 275 353 412 474 458 461
Export
(in million tons)
163 191 198 210 287 345 402 382 366
Domestic
(in million tons) 61 49 56 65 66 67 72 76 87
Price (HBA)
(in USD/ton) n.a n.a 70.7 91.7 118.4 95.5 82.9 72.6 60.1
Sources: Indonesian Coal Mining Association (APBI) & Ministry of Energy and Mineral Resources

http://www.indonesia-investments.com/news/news-columns/indonesia-s-coal-price-soaring-reason-for-euphoria-or-not/item7343


http://www.indonesia-investments.com/news/todays-headlines/new-regulations-in-indonesia-s-coal-mining-industry/item7426
New Regulations in Indonesia’s Coal Mining Industry
08 December 2016

Coal Industry, Ministry of Energy and Mineral Resources, Coal Production, Coal Mining, Coal

Indonesia’s Ministry of Energy and Mineral Resources will prepare new regulations regarding coal production in the regions. Usually, local coal miners, together, produce much more coal than what is targeted by the central government. By implementing stricter regulations and better monitoring (by enhanced coordination between the central and regional governments) there should be less opportunities for Indonesian coal miners to produce excess supply in the future.

Sujatmiko, spokesman for Indonesia’s Energy and Mineral Resources Ministry, said these new regulations will become more effective after the government has completed the reforming of licenses in the mining sector.

In recent history the regional governments of Indonesia in coal-rich areas (particularly Kalimantan and Sumatra) issued thousands of Mining Business Permits (Izin Usaha Pertambangan, or IUPs) without keeping proper administration. Hence, there occur numerous cases of overlapping concession areas, while many of the mining companies lack the mandatory clean and clear certificate (CnC) that was introduced two years ago (the CnC status shows that the miner has no outstanding royalty obligations and other tax debts, fulfilled its exploration and environmental commitments, has no property delineation issues and obtained the necessary forestry permits).

Most likely local authorities were eager to issue IUPs (as many as possible) because they received “under-the-table” cash payments. Per November 2016, the government issued a total of 10,818 IUPs. However, only 6,404 have the CnC status, implying there remain more than 4,000 troubled mining licenses.

This year the central government targets to see coal production at 419 million tons. However, Bambang Gatot, senior official at the Ministry of Energy and Mineral Resources, said production realization is bound to exceed the government’s target, as usual. In 2015 the government set the target of 425 million tons of coal. However, national coal production reached 461 million tons at the year-end, far above the target (and this official figure does not even include the vast amount of illegal coal shipments from Indonesia).

Hendra Sinadia, Deputy Executive Director of the Indonesian Coal Mining Association (APBI), believes Indonesia’s coal production will rise in 2017 as miners will be eager to sell more coal now the coal price has surged drastically in recent months. However, he adds that part of the mining community will remain careful not to boost production too much as they are aware about the possibility that coal prices will slide again in 2017 due to rising global output.

The government not only wants to curtail coal production. It also wants to curb coal exports in order to safeguard future coal supplies for the domestic market (particularly for domestic power generation). After reforming the IUPs – implying that perhaps thousand permits need to be revoked – it should automatically result in lower coal production in Indonesia, Gatot said.

Indonesian Government’s Benchmark Thermal Coal Price (HBA):
Month 2012 2013 2014 2015 2016
January 109.29 87.55 81.90 63.84 53.20
February 111.58 88.35 80.44 62.92 50.92
March 112.87 90.09 77.01 67.76 51.62
April 105.61 88.56 74.81 64.48 52.32
May 102.12 85.33 73.60 61.08 51.20
June 96.65 84.87 73.64 59.59 51.87
July 87.56 81.69 72.45 59.16 53.00
August 84.65 76.70 70.29 59.14 58.37
Sept 86.21 76.89 69.69 58.21 63.93
Oct 86.04 76.61 67.26 57.39 69.07
Nov 81.44 78.13 65.70 54.43 84.89
Dec 81.75 80.31 69.23 53.51 101.69
in USD/ton
Source: Ministry of Energy and Mineral Resources

Indonesian Production, Export, Consumption & Price of Coal:
2008 2009 2010 2011 2012 2013 2014 2015 2016
Production
(in million tons) 240 254 275 353 412 474 458 461 419¹
Export
(in million tons)
191 198 210 287 345 402 382 366 333¹
Domestic
(in million tons) 49 56 65 66 67 72 76 87 86¹
Price (HBA)
(in USD/ton) n.a 70.7 91.7 118.4 95.5 82.9 72.6 60.1 61.8
¹ Government target
Sources: Indonesian Coal Mining Association (APBI) & Ministry of Energy and Mineral Resources

http://www.indonesia-investments.com/news/todays-headlines/indonesia-s-coal-price-continues-to-soar-in-2nd-half-of-2016/item7411
http://www.indonesia-investments.com/business/commodities/coal/item236


http://www.indonesia-investments.com/news/todays-headlines/international-energy-agency-iea-global-coal-demand-to-stagnate/item7436
International Energy Agency (IEA): Global Coal Demand to Stagnate
12 December 2016

International Energy Agency, Coal Consumption, Coal Industry, Coal Mining, Coal

The International Energy Agency (IEA) says worldwide demand for coal will not grow significantly over the next five years. It sees worldwide coal demand in 2021 roughly at the same level as in 2014. In a report published on Monday (12/12) the agency says it detects rising demand for renewable energy sources (at the expense of coal) in Europe and North America, while in China coal consumption is also expected to stagnate. However, the IEA believes that coal will remain the most important energy source as it is cheap and easy to produce.

Although coal consumption in China is expected to fall in the years ahead due to the country’s new economic growth model and diversification of coal, the IEA believes China remains the largest coal consumer over the next five years. Coal demand in China is expected to decrease (slightly) from 2.896 billion tons of coal equivalent in 2014 to 2.816 billion tons by 2021. Whether the IEA’s forecasts come true largely depends on developments in China as this nation accounts for about 50 percent of the world’s total coal demand.

While the IEA sees coal demand in advanced economies and China declining, it sees coal demand growing in India and Southeast Asia where nations seek a cheap solution for power generation. Nations like Indonesia (with large populations, expanding middle classes, and rapidly growing economies) need to meet increasing power demand at home.

Overall, coal demand will only grow modestly over the next five years. The IEA projects global coal consumption in 2021 to reach 5.63 billion tons of coal equivalent, just above 2014 levels (5,400 billion tons). This would imply a 0.6 percent average annual growth between the years 2015-2021 (down from a 2.5 percent annual average growth over the past decade).

http://www.indonesia-investments.com/news/todays-headlines/indonesia-s-coal-price-continues-to-soar-in-2nd-half-of-2016/item7411
http://www.indonesia-investments.com/news/todays-headlines/new-regulations-in-indonesia-s-coal-mining-industry/item7426
http://www.indonesia-investments.com/business/commodities/coal/item236


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