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Digging Deep: New Indonesian Mining Law to Replace the Mining Law?

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Summary: News of a new Indonesian mining law first emerged in 2016. Since then, the Indonesian House of Representatives (“DPR”) has prepared several revisions, including the latest draft dated 10 April 2018 by Commission VII of the DPR. While it is possible that the legislative process may be delayed, the DPR currently intends to finalise the new law by 30 June 2018.

News of the proposal for a new Indonesian mining law (the “Draft Minerba Law”), regulating both mineral and coal resources, first emerged in 2016.  Since then, the Indonesian House of Representatives (the “DPR”) has prepared several draft revisions, including the latest draft dated 10 April 2018 by Commission VII of the DPR.  This is despite public criticism from Energy and Mineral Resources Minister Ignasius Jonan, who has warned that a new law may reinforce concerns about regulatory stability and the consistent application of mining policy as the existing Law No. 4 of 2009 on Mineral and Coal Mining is only 9 years old.

Timing

The Draft Minerba Law’s timing is currently under discussion.  As it stands, the Ministry of Energy and Mineral Resources (“MEMR”) has targeted its finalisation by the end of June 2018.  As Commission VII and the MEMR are in a rush to complete the process, they have urged for any submissions from the private sector to be sent to them as soon as possible. 

If the target deadline is not met, the entire process may be delayed until after the new DPR has been elected in 2019 due to competing legislative priorities.  The process could also be completely reset following the general elections to the extent that there is a change of President or controlling DPR coalition.

Process

The Draft Minerba Law is currently moving through the DPR’s usual legislative process, involving various ministries, industry stakeholders, academics, NGOs and, finally, the President.  It was highlighted during Djakarta Mining Club’s public consultation on 15 May 2018 that the process has not been as clear and transparent as it should have been.  The inaccessibility of the Draft Minerba Law, in particular, has meant that it has been a challenge for the industry to provide comments.  This feedback will be hopefully noted so that similar processes can be improved in the future. 

Content

The Draft Minerba Law covers a familiar range of areas relating to resource management, the division of work areas, licensing requirements, value add and divestiture obligations, royalties, environmental considerations, administrative provisions and sanctions and transitional provisions for existing contract of work (“CoW”) holders.  The transitional provisions, in particular, need to be considered in the context of ESDM’s recent negotiations with PT Freeport Indonesia and other brownfield operations where the CoWs will be likely converted into the form of IUPK mining license envisaged under the existing laws.

A detailed analysis of these provisions is outside the scope of this memorandum.  By way of general observation, however, it appears that the Indonesian government’s position on a number of these matters will only become clear when the MEMR, or any other relevant ministry or governmental body, issues the regulations needed to implement the new law.  If history is any guide, it may take a significant amount of time for such regulations to be issued which could result in a significant degree of regulatory uncertainty.

In our view, the Draft Minerba Law does not go far enough to tackle long-standing issues such as a lack of co-ordination between governmental authorities, and the complexity inherent in the current regime given the range of different concessions and licenses, each attracting a different set of requirements. 

Some of the other comments raised during the public consultation on 15 May 2018 include the following.

  1. The Draft Minerba Law does very little, if anything, to encourage mining exploration activities in Indonesia.  This would require a focus on the future of the industry, rather than the current focus on the regulation and collection of royalties from the existing mines, many of which were first discovered many decades ago.  The government has pointed out that the development of new mining areas is not one of its current priorities, and would need to be balanced with environmental concerns.  On the other hand, it was pointed out that the extensive illegal mining already taking place in such areas may in the long run impose a much heavier environmental toll.
  2. The Draft Minerba Law does not envisage any concrete steps towards attracting private equity or other foreign capital into Indonesia’s mining sector.  This would be critical in order to move forward with new projects.  Further reform is needed, therefore, to put Indonesia back on the map in terms of foreign direct investment, and to promote and finance a healthy and sustainable natural resources sector.
  3. Concerns continue to exist around any proposal to divest licensing powers or other responsibilities to the local governments.  Regional capacity building would need to take place before devolving further responsibilities at the local level, and it is generally considered that previous attempts at decentralisation have been detrimental to the industry, at least from a private sector standpoint.  As such, the Draft Minerba Law should be revised to centrally concentrate the power to issue and revoke mining licenses, among other things. 

Conclusion

Due to its abundance of natural resources, Indonesia holds an important strategic position on the international stage.  Despite this, the Draft Minerba Law has so far attracted surprisingly little attention abroad.  Perhaps the lack of attention has been due to the large number of recent changes to existing mining regulations, leading to a view that the changes are inevitable.  Some stakeholders may also believe that it is unlikely that the new law will be finalised by the end of June 2018, leading to a degree of comfort with a wait and see approach. 

Whatever the reason, it is hoped that the next step in the evolution of Indonesia’s mining laws – whenever this may take place – follows a thorough and transparent consultation with all interested stakeholders.  The new law could then set the foundations for moving towards a sustainable, competitive and successful Indonesian mining industry. 

 

*Marius is currently on secondment with leading Indonesian firm, Ivan Almaida Baely & Firmansyah (IAB&F) in their Jakarta office.

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