Wednesday, May 29, 2024

How-to Understand the Reclamation and Divestment Obligations in Mine Exploration

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With government policies that are considered too wide to open the door for foreign investment, it is undeniable that foreign investors will then dominate investment in the mining sector. For this reason, the Indonesian government requires mining companies in Indonesia whose shares are owned by foreigners to reduce share ownership or divest shares. The shares that have been divested are then transferred to the central, regional government, BUMN, BUMD, and national private business entities. In addition, coal mining companies that utilize natural resources certainly have a greater responsibility for nature conservation. Mining companies must carry out reclamation after the age of carrying out mining activities

Governing Law and Regulation 

  • Law Number 4 of 2009 concerning Mining (“Mining Law”) 
  • Law Number 3 of 2020 concerning Amendment to the Mining Law (“Law 3/2020”) as amended by Law No. 11 of 2020 concerning Job Creation
  • Government Regulation Number 96 of 2021 concerning the Implementation of Mineral and Coal Mining Business Activities (“GR 96/2021”)
  • Minister of Energy and Mineral Resources Regulation Number 26 of 2018 concerning Implementation of Good Mining Rules and Supervision of Mineral and Coal Mining (“MoEMR Reg 26/2018”)
  • Minister of Energy and Mineral Resources Decree Number 1827 K/30/MEM/2018 concerning Guidelines for the Implementation of Good Mining Engineering Rules (“MoEMR Decree 1827 K/30/MEM/2018”)
  • Minister of Energy and Mineral Resources Number 9 of 2017 Regulation concerning Procedures for Divestment of Shares and Mechanism of Determining the Price of Divestment Shares in Mineral and Coal Mining Business Activities as amended by Regulation of the Minister of Energy and Mineral Resources Number 43 of 2018 (“MoEMR Reg 9/2017”)
  • The Ministry of Energy and Mineral Resources Regulation No. 25 of 2018 concerning Mineral and Coal Mining Business (“MoEMR Reg 25/2018”) as amended several times with the latest amendment by the Minister of Energy and Mineral Resources No. 17 of 2020 concerning the Third Amendment to the Regulation of the Minister of Energy and Mineral Resources Number 25 of 2018 concerning Mineral and Coal Mining

Reclamation Obligation 

The holder of an Exploration Mining Business License or Izin Usaha Pertambangan (“IUP”) or Special Mining Business License or Izin Usaha Pertambangan Khusus (“IUPK”) is required to include a reclamation plan in their exploration Work Plan and Budget or Rencana Kerja dan Anggaran Biaya (“RKAB”), among others, and to provide a reclamation guarantee in the form of a time deposit placed in a state-owned bank. Reclamation plans for the exploration stage need to be prepared before exploration activities are carried out. After submitting an application for an IUP -OP, the reclamation plan for the production phase and the post -mining plan are also to be prepared by the IUP/IUPK holder, and this plan should cover a five -year period (or the remainder of the mine life, if shorter). 

Based on MoEMR Reg 26/2018 and MoEMR Decree 1827 K/30/MEM/2018, an Operation Production Mining Business License or Izin Usaha Pertambangan Operasi Produksi (“IUP-OP”), Operation Production Special Mining Business License or Izin Usaha Pertambangan Khusus Operasi Produksi (“IUPK-OP”) holder must provide the following, among other requirements:

  • A five -year reclamation plan;
  • A post -mining plan; 
  • A reclamation guarantee, (i) which may be in the form of a joint account, a time deposit that has been placed at a state -owned bank in IDR or USD currency for reclamation guarantee at the exploration stage ; and (ii) in the form of a time deposit that has been placed at a state -owned bank in IDR or USD currency for reclamation guarantee at the operation production stage; 
  • A post -mining guarantee, in the form of a time deposit with a state -owned bank in IDR or USD currency; and 
  • A periodical report on the implementation of reclamation and post -mining activities. 

The obligation to provide reclamation and post-mining guarantees does not relieve IUP holders from the obligation to carry out reclamation and post-mining activities. MoEMR Reg 26/2018 and MoEMR Decree 1827 K/30/MEM/2018 also regulates the procedure for preparing reports on reclamation and post-mining activities that must be submitted to ESDM on a regular basis. Reclamation and post-mining activities will be evaluated on the release of reclamation guarantees and post-mining guarantees. In the event that the reclamation and post-mining criteria are not met, the Ministry of Energy and Mineral Resources or the Governor appoints a third party to carry out the reclamation.

Divestment Obligation

Law 3/2020 emphasizes the general rule of 51% divestment obligation after five years of production. In addition, Law 3/2020 specifies that holders of IUPs or IUPKs shall gradually divest 51% to the Central Government, Regional Government, BUMN, BUMD, and/or national private business entity. If the required divestment cannot be carried out, the divestment is carried out through the Indonesia Stock Exchange. Law 3/2020 also stipulates that the price of shares to be divested will be determined based on the fair market value of the shares excluding the value of coal or mineral reserves. Law 3/2020 does not mention when the divestment requirements begin and when it must be completed. The issues mentioned above will usually be further defined under the new implementing regulations. MoEMR Reg 9/2017 stipulates that divestment can be carried out by offering shares on the IDX in the event that none of the Central Government, the Provincial Government or Regency/Municipal Government, a BUMN, a BUMD, or a national private business entity is interested in taking the divested shares. This implies that divestment via the Indonesian capital markets can be treated as satisfying the divestment requirements. 

Divestment Rules

In accordance with the amendments to GR 96/2021 foreign shareholders must, after five years of production, divest their shares in stages, so that by the tenth year of production, foreign shareholders have a maximum shareholding of 49%. Divestments are to be made to (in order of preference) the Central Government, the Provincial Government or Regency/Municipal Government, BUMN and BUMD, or a national private business entity (in the form of a Limited Liability Company). Further, pursuant to the Amendment to Mining Law, the Central Government through the MoEMR together with the Provincial Government or Regency/Municipal Government, BUMN, and/or BUMD, may coordinate the divestment scheme and divested shares composition.

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