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Legal Updates | Government to Issue Regulation to Re-order or Revoke IUPs

For the past five years, the Ministry of Energy and Mineral Resources ("MEMR") has sought to tidy up historic anomalies in the issuance of mining business permits (IUPs).

As part of this process, the MEMR maintains a "Clean and Clear" list which provides information on IUPs that have been found by the MEMR to fulfil certain requirements, including (amongst others):

  1. having no overlapping areas with other mining areas; and
  2. where the holder has satisfied certain financial obligations (such as royalty and deadrent payment obligations).

As a result, the "Clean and Clear" certificate has increasingly became essential to secure other approvals and licenses - e.g. for approval of a change of shareholding, or the issuance of forestry borrow-to-use permits (pinjam pakai), etc.

Against this background, it has been recently floated in the media that the MEMR may soon issue a regulation to sort out problematic IUPs, by setting out a legal basis to revoke non-compliant IUPs.

What can we expect from the regulation?

Given that the authority to supervise the mining industry vests only with the MEMR and governors, we expect that the person authorized to supervise this regulation will also be the MEMR and governors, with no involvement from the regents (bupati). It also seems likely that governors will act as the front guard of the MEMR in identifying problematic IUPs, particularly in respect of:

  1. overlapping areas with other IUPs.
  2. overlapping areas with forest areas.
  3. overlapping administrative areas (overlapping with another regency, city or province).
  4. conformity of coordinates of the IUPs with the reserve areas.
  5. conformity of coordinates of the Production Operation IUPs with the Exploration IUPs.

Possible Remedies

The assessment by the governor may affect the respective IUPs, by way of, amongst others:

  1. adjustment of the IUP (for example, by revising the coordinates as necessary);
  2. relinquishment of area, if only part of an IUP is affected; and
  3. revocation of IUP.

As this assessment should sort the compliant IUPs from the non-compliant ones, we expect that the results of this assessment will be used by the MEMR to determine the status of these IUPs.

Takeaways

While it may be too late for some IUP companies to ensure that their IUPs have been properly issued, they should ensure that their reporting, financial and environmental obligations have been satisfied, and that they have been issued with a Clear and Clean certificate.

Hadiputranto, Hadinoto & Partners, Member of Baker & McKenzie International - 16th December 2015

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Indonesia Snapshot

Capital: Jakarta
Population: 259 million (2016)
Currency: Indonesian Rupiah
Nominal GDP: $936 billion USD (IMF, 2016)
GDP Per Capita: $3,620 USD at Current Prices (IMF, 2016)
GDP Growth: 5.0% (2016)
External Debt: 36.80% of GDP (BI, Q2 2016)
Ease of Doing Business: 91/190 (WB, 2017)
Corruption Index: 90/176 (TI, 2016)