Friday, June 14, 2024

How-to understand rights and obligation of license holders in mining business activities

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The Government of Indonesia through the Ministry of Energy and Mineral Resources Regulation (Permen ESDM) No. 7/2020 seeks to ensure legal certainty, business certainty, increase effectiveness and efficiency in the implementation of mining business activities. Through this regulation, the government also wants to encourage the development of business and regulate provisions regarding procedures for granting territories, licensing, and reporting on mineral and coal mining business activities.

Governing law and regulation 

  • Minister of Energy and Mineral Resources Regulation (Permen ESDM) No. 48/2017 on the Supervision of Business in the Field of Energy and Mineral Resources
  • Ministry of Energy and Mineral Resources Regulation (Permen ESDM) No. 7/2020 concerning Procedures for the Granting of Areas, Licensing, and Reporting in Mineral and Coal Mining Business Activities as amended by the Ministry of Energy and Mineral Resources Regulation (Permen ESDM) No. 16 of 2021
  • Minister of Energy and Mineral Resources Regulation(Permen ESDM) No. 5/2021, on Standards of Business Activities and Products on the Administration of Risk-Based Licensing on the Energy and Mineral Resources Sector

Rights of Mining Business License (IUP) and Special Mining Business License (IUPK) holders

Under the Permen ESDM No. 7/2020, the IUP and IUPK holders have the rights as follows: 

  • To conduct the mining business activities at a Mining Business License Area (WIUP) or Special Mining Business License Area (WIUPK) in accordance with the provisions of the laws and regulations; 
  • To have the minerals, including the associated minerals or coal that have been produced, after fulfilling the production dues, except for the radioactive minerals; 
  • To build facilities and/or infrastructure supporting the mining business activities; 
  • To sell the minerals or coal, including selling overseas after the fulfillment of domestic needs, and selling minerals or coal that have been excavated during exploration activities or feasibility study activities, in accordance with the provisions of the legislation; 
  • To obtain the rights to the land, in accordance with the provisions of the legislation; 
  • To use foreign workers in accordance with the approval of the agencies that administer affairs in the field of manpower, in accordance with the provisions of the legislation; and 
  • To make any changes to investment and financing sources, including charges of paid-up capital, and place them in accordance with the approval of the annual Work Plan and Budget (RKAB).

Obligations of IUP and IUPK holders

Under the Permen ESDM No. 7/2020, the IUP and IUPK holders have the obligations as follows:

  • To conduct all of the mining business activities in accordance with the provisions of the legislation; 
  • To prepare and submit an annual RKAB to the energy ministry or the governor; 
  • To prioritize the fulfillment of coal and mineral needs in the country, and to adhere to the controls over production and sales; 
  • To prepare and obtain approval for reclamation and post-mining plans and to introduce reclamation and post-mining guarantees; 
  • To increase the added value of mineral or coal mining products in the country, in accordance with the provisions of the laws and regulations; 
  • To prepare, implement, and submit reports on the implementation of the community development and empowerment programs; 
  • To submit all of the data that was obtained from the activities of the exploration and production operations to the energy ministry or the governor; 
  • To prioritize the utilization of local manpower, goods, and services in the country, in accordance with the provisions of the legislation; 
  • For Foreign Investment (PMA), the IUP and IUPK holders, to divest shares to Indonesian participants, in accordance with the provisions of the legislation; and 
  • To pay the necessary financial obligations, in accordance with the laws and regulations.

Prohibitions of IUP and IUPK holders 

Under the Permen ESDM No. 7/2020, the IUP and IUPK holders are subject to prohibition as follows: 

  • To sell the mining products abroad, before processing and/or refining them in this country; 
  • To sell mining products that have not been produced by their own mining concession; 
  • To perform blending activities for coal originating from the holders of an IUP-OP, IUPK-OP or an IPR, without receiving approval from the Directorate General of Mineral and Coal or Direktorat Jenderal Mineral dan Batubara (DGoMC) or governors in accordance with their authority; 
  • To perform the processing and/or refining of the mining products, without having the IUP, Peoples’ Mining License or Izin Pertambangan Rakyat (IPR), or IUPK; 
  • To engage subsidiaries and/or affiliates as mining service providers, without receiving approval from the DGoMC on behalf of the energy ministry; 
  • To have an IPR, an Operation Production Mining Business License or Izin Usaha Pertambangan Operasi Produksi (IUP-OP) Specifically for Processing and/or Refining, an IUP-OP Specifically for Transportation and Sales, and a Mining Services Business License or Izin Usaha Jasa Pertambangan (IUJP); 
  • To pledge the IUP/ IUPK and/or mining commodities to other parties; and 
  • To perform a general inspection and exploration, and to conduct a feasibility study, before the annual RKAB for the Exploration IUP is approved.

Reporting of mineral and coal business activities

Based on Permen ESDM No. 7/2020, IUP holders are required to prepare and submit annual RKAB and periodic written reports on annual RKAB, as well as business activity performance. Both of these documents need to be submitted periodically to the Ministry of Energy and Mineral Resources (through the DGoMC) or the governor.

There are several types of IUPs that are subject to the following Reporting Requirements: 

  • IUP and IUPK holders (for both exploration and operation); 
  • IUJP; 
  • IPR; 
  • Rock Mining Permit or Surat Izin Penambangan Batuan (SIPB); and 
  • IUP Penjualan. 

The submission period: 

  • Initial reporting: no later than 30 calendar days after the issuance of the IUP. 
  • Subsequent reporting: at least 90 calendar days after and no later than 45 calendar days before the end of the fiscal year, which also includes the obtaining of the consent for the annual RKAB. 
  • In the event of an IUP being issued within 45 calendar days of the end of the fiscal year, the IUP holder shall submit the annual RKAB in order to obtain the consent either: (i) before the performance of the annual RKAB in the current year; or (ii) no later than the end of the fiscal year for next year’s annual RKAB.

The annual RKAB evaluation and approval process: 

  • On behalf of the energy ministry or the governor, the DGoMC shall perform an evaluation of the annual RKAB and provide the approval for, or a response about the annual RKAB in no more than 14 business days after the date when the annual RKAB was completely and properly received. 
  • IUP holders are required to deliver the revised version of the annual RKAB, which must accommodate the response from the DGoMC, in no longer than five days after the date when the response from the DGoMC was received. 
  • The DGoMC shall give approval for the revised version of the annual RKAB in no more than 14 business days after the date when the revised annual RKAB was completely and properly received.
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