Foreign companies seeking to establish a non-oil and gas mining operation in Indonesia are required to establish a foreign investment company (PMA) (See Incorporating a PMA Company in Indonesia), and subsequently obtain a mining license (IUP) from the Investment Coordinating Board (BKPM). There are two main types of mining licenses available for PMAs; for exploration activities (IUP Eksplorasi and IUPK Eksplorasi), and for production operation activities (IUP Operasi Produksi and IUPK Operasi Produksi). Each is further divided into four categories based on the commodity; coal, metallic minerals, non-metallic minerals, and stones.

With regards to which activities constitute exploration or production operations; exploration may include general assessments and feasibility studies, while production operations may include construction and preparatory works, the actual mining activity, processing and refining as well as transport and sales.

Tenders

An IUP is obtainable when a PMA has secured a right over a mining area (WIUP) by winning a tendering process held by the government. In order to participate in such tenders, a PMA must meet a number of administrative, technical and financial requirements. Administrative requirements include:

1. To fill the form provided by the tender organiser.
2. To provide a profile of the company.
3. To provide the deed of establishment of the PMA which has been validated by the relevant authority.
4. To provide a taxpayer identification number (NPWP).

Meanwhile, the technical requirements include:

1. To have at least three years of experience in the mining business; or for a newly-established company, to have the backing of its parent company, a partner company, or an affiliate company involved in the mining sector.
2. To employ at least one qualified expert in mining or geology with at least three years of professional experience.
3. To produce a work plan and a budget plan for four years of exploration activities.

As for the financial requirements, a PMA must be able to provide:

1. A financial report for the past year that has been audited by a public accountant.
2. A cash deposit of 10% of the compensation value of the data, or 10% of the investment compensation value of the WIUP tender as proof of the participant’s commitment.
3. A statement declaring the participant’s willingness to pay the value of the WIUP tender in no longer than five working days after the winner has been announced.

Obtaining the license

In applying for an IUP, a PMA must meet a number of requirements related to administrative, technical, financial as well as environmental matters. Administrative requirements for an exploration license or a production operation license related to coal and metallic minerals include:

1. An application letter.
2. A list of members of the company’s Board of Directors and shareholders.
3. A certificate of domicile.

Additional requirements for licenses related to non-metallic minerals and stones are:

1. A profile of the company.
2. The PMA’s deed of establishment which has been validated by the relevant authority.
3. A taxpayer identification number (NPWP).

Meanwhile, technical requirements for an exploration license include:

1. The curriculum vitae and a statement letter from the qualified expert in mining and/or geology that has been employed by the company. The individual must have at least three years of professional experience.
2. A map of the WIUP complete with latitude and longitude information of the borders.

As for a production operation license, additional technical requirements are as follows:

1. A complete exploration report.
2. A feasibility study report.
3. A plan for reclamation and post-mining activities.
4. A work plan and a budget plan.
5. A plan for developing primary and supporting facilities.
6. To have employed a qualified mining professional and/or geologist with at least three years of experience.

For both licenses, the required documents related to environmental matters consist of a statement letter declaring the company’s willingness to comply with applicable regulations. A production operation license, however, necessitates additional documents pertaining to environmental permits.

Financial requirements as regulated by the government include:

1. For an exploration license; a proof of deposit of the commitment fee, and a proof of payment of the compensation value of the data.
2. For a production operation license; an audited report of the company’s past year finances, a proof of payment of the fixed fee from the last three years, and a proof of payment of the investment compensation.

Related regulations

It should be noted that since the enactment of Government Regulation No. 1 of 2014 on the Second Amendment to Government Regulation No. 23 of 2010 on Mineral and Coal Mining Business Activities, the export of unprocessed and unrefined coal and minerals has been banned. A third amendment which was issued in the same year also imposes mandatory divestment requirements for PMAs, one of which obligates a PMA that does not carry out its own processing or refining activities to sell a portion of its shares after five years of production to reach a local ownership percentage of at least:

1. 20% in the sixth year.
2. 30% in the seventh year.
3. 37% in the eight year.
4. 44% in the ninth year.
5. 51% in the tenth year.

Mining commodities

The following is a list of the mining commodities specified in applicable laws:

1. Radioactive minerals include radium, thorium, uranium, monazite, etc.
2. Metallic minerals include lithium, beryllium, magnesium, potassium, calcium, gold, copper, silver, lead, zinc, tin, nickel, manganese, platinum, bismuth, molybdenum, bauxite, mercury, tungsten, titanium, barite, vanadium, chromite, antimony, cobalt, tantalum, cadmium, gallium, indium, magnetite, iron, galena, alumina, niobium, zirconium, ilmenite, chrome, erbium, ytterbium, dysprosium, thorium, cesium, lanthanum, niobium, neodymium, hafnium, scandium, aluminium, palladium, rhodium, osmium, ruthenium, iridium, selenium, telluride, strontium, germanium, etc.
3. Non-metallic minerals include diamond, corundum, graphite, arsenic, quartz sand, fluorspar, cryolite, iodine, bromine, chlorine, sulfur, phosphate, halite, asbestos, talc, mica, magnesite, jarosite, ocher, fluorite, ball clay, fire clay, zeolite, kaolin, feldspar, bentonite, gypsum, dolomite, calcite, chert, pyrophyllite, quartzite, zircon, wollastonite, alum, quartz stone, perlite, rock salt, clay, limestone for cement, etc.
4. Stones include pumice, trass, obsidian, marble, perlite, diatomaceous earth, fuller’s earth, slate, granite, granodiorite, andesite, gabbro, peridotite, basalt, trachyte, leucite, clay, opal, chalcedony, chert, quartz crystal, jasper, chrysoprase, jade, diorite, topaz, gravel, river pebble, laterite, limestone, onyx, sea sand, etc.
5. Coal includes bituminous coal, asphalt and peat.

For more information about applying for a mining license or finding a local partner in Indonesia, contact GBG Indonesia.

Global Business Guide Indonesia - 2016

Tweet

digg

Indonesia Energy Snapshot

Contribution to GDP: 3.44% (2016) Oil & Gas Imports: $1.22 billion USD (Jan 2016)
Proven Oil Reserves: 3.69 billion barrels (2016)
Proven Gas Reserves: 2.85 trillion cubic metre (2016)
Proven Coal Reserves: 28 billion tonnes total reserves (2015)
Proven Potential in Geothermal Energy: 27 GW
Proven Potential in Hydropower: 75 GW
Other Energy Sources: Coal Bed Methane, Biomass, Waste, Ocean Current, Solar, Wind.
Current Energy Mix: Petroleum 41%, Coal 30%, Natural Gas 23%, Renewables 6% (2014).

Interview Highlights