Monday, February 01, 2010

Coal Mining Activities in Kalimantan

As we all are aware The Minerals and Coal Mining Law No. 4 Year 2009 was passed by the DPR ( House of Representatives)  on 16 December 2008 and was signed by the President on 12 January 2009. 

After 30 Years enjoying COW (Contract Of Work), and Work Agreement For Coal Mining Enterprises  (CCOWs) Indonesia enters into a new era where new licensing regime is introduced replacing the rulings of  COW  to conduct Mining Business Operations in Indonesia.  There are significant changes and several new provisions being introduced. Up to this moment we are still waiting for the Implementation Rulings of this New Law which usually  are done by rulings made by the Government  through the issuances of PP (Government Regulations) as frequently  being mentioned in such  Minerla and Coal Laws.

Besides the Government Regulation that may also be several  Decrees issued by the Respective Governmental  Officers such as Presidential Decrees, Ministerial of Mines and Energy Decree, Decree from the Directorate of General Mining as well as  Decree from the Directorate of Coal.  In the Regional Local Level, The Governor or the Bupati  and the DPRD ( Regional House Of People  Representative) in coordination with the Governor shall issue Regional Government Rules. 

As we watch the news relating  to Coal Mining Activities in Kalimantan  made by Kompas  during these last days,  we  understand that several rulings relating to Coal Mining Permits had been made  by the Department of Forestry, as well as the Bupati,  where The Department of Forestry  had issued the permit to lend and use the part of land of located within the the Forestry Protection or Forestry Conversation Area. It is indicated that the Bupati and the Walikota had issued several Kuasa Pertambangan Batubara ( CoaL Mining Authrotity Permit), which according to the Governor of East Kalimantan there are around 1.180 Coal Mining Permits issued by the Local Regional Government (Pemerintahan Kabupaten/Kota) and 32 Coal Mining Authority Permits issued by the Central Government. 

On the other hand,  Kompas Newspaper dated 27th January, 2010,  said that the Bupati  of Kutai Timur (East Kutai) had revoked 12 KP from 38 KP which was issued by the previous Bupati. The reason in revoking this 12 KP is because 7 KP was issued within the Kutai National Park Conservation which is in violation of the rules. The other  5 KP is revoked since no progress of following up the permit from General Survey to Exploration is performed. Several other KP are being evaluated with the reasoning that no reclamation was made, no seriousness in continuing the Coal mining is conducted and overlaping with other activities. 

Since Otonom Region was introduced in 2001 up to the New Law No. 4 Year 2009, Kompas, says  that  there are thousands of Mining Aurthority being issued by the Regional Government, many of which are not in accordance with the allotment of the land. One of the Sources said that the Reclamation of the ex Coal Mining Area Holes should actually not be treated as Burden, but rather as Investment by the Coal Mining Investors.

Brief Awareness of the NEW Mineral  and COAL LAW No. 4 Year 2009. 

Before we continue in observing the Kompas newspaper Highlights of this indicated  Un - Controlled Coal Mining Activities in Kalimantan,  it is wise,  to educate our selves with  Brief Key Issues on the New Mineral and Coal Law No 4 Year 2009 to enlighten ourselves upon the New Minerals and Coal Law  in Indonesia.

This New Mining Law  does not differentiate between mining licenses for domestic and foreign investors. All investors must have either : 

a Mining Business Permit (Izin Usaha Pertambangan-“IUP”), a People’s Mining Permit (Izin Pertambangan Rakyat-“IPR”) or  

a Special Mining Business Permit (Izin Usaha Pertambangan Khusus-“IUPK”)  to engage in mining activities. 

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  • An IPR will only be given to :
    • an individual (for a maximum of 1 Ha)
    • a group of people (for a maximum of 5 Ha) and 
    • a cooperative (for a maximum of 10 Ha). 
  • An IUP and IUPK is granted to Private Companies with certain size limitation.  
  • The IUP/IUPK is divided into an Exploration and a Production Operations IUP or IUPK. 
  • The Exploration IUP/IUPK covers General Surveys, Exploration and Feasibility Studies, and the Production Operations 
  • IUP/IUPK covers construction, mining, processing and refining activities as well as transportation and sales. 
  • Each type of IUP/IUPK has its own term and area limitation. 
  • Significant Key Features of the Law No 4 Year 2009 : 

Duration : 

    Exploration IUP:   

    Metal: up to 8 years for a concession area between 5,000 Ha and 100,000 Ha; 
    Non-metal: up to 3 years for a concession area between 500 Ha and 25,000 Ha; 
    Specific non-metal: up to 7 years; 
    Rocks: up to 3 years for a concession area between 5 Ha and 5,000 Ha; and 
    Coal: up to 7 years for a concession area of between 5,000 Ha and 50,000 Ha. 

    Production Operations IUP
    Metal: up to 20 years for a concession area of up to 25,000 Ha, extendable for 10 years a maximum of twice; Non-metal: up to 10 years for a concession area of up to 5,000 Ha, extendible for 5 years a maximum of twice; Specific non-metal: up to 20 years extendible for 10 years a maximum of twice; 
    Rocks: up to 5 years for a concession area of up to 1,000 Ha, extendible for 5 years a maximum of twice; and Coal: up to 20 years for a concession area of up to 15,000 Ha, extendable for 10 years a maximum of twice. 

    An IUPK is granted for a National Mining Reserve Area. 

    Durations and concession areas of IUPK

    Exploration IUPK: 

    Metal: up to 8 years for a concession area of up to 100,000 Ha; and 
    Coal: up to 7 years for a concession area of up to 50,000 Ha.

    Production Operations IUPK: 
    Metal: up to 20 years for a concession area of up to 25,000 Ha, extendible for 10 years a maximum of twice; and Coal: up to 20 years for a concession area of up to 15,000 Ha, extendable for 10 years a maximum of twice.

     The relevant Regional Government issues a WIUP (Wilayah Izin Usaha Pertambangan/Mining License Business Area) to a business entity, a cooperative or an individual.  

    A Metal minerals or Coal WIUP can be issued through public tender, while a Non-metal minerals and Rocks WIUP can be issued through an application for a reserve area. 

    State Reserve Areas (Wilayah Pencadangan Negara-“WPN”) are to be determined by Central Government with prior approval from the DPR ( House of Representatives). These areas may be exploited under an IUPK which may be issued to an Indonesian Legal Entity including a State Owned Enterprise, Regional Owned Enterprise or private sector entity. 

    State/Regional Owned Enterprises are given priority in obtaining IUPK and if not taken,  the Private Sector can obtain it through public tender. 

    TRANSFER OF IUP/IUPK - Ownership -shares of Company Holding IUP / IUPK

    An IUP/IUPK cannot be transferred. However ownership or shares in a Company holding an IUP/IUPK can be made. 

    Transfer of ownership or shares in the Indonesian Stock Exchange may only be permited if :
    • the company has found 2(two) prospective areas during the Exploration Period, and  
    • there must be a  prior notification to the Minister, Governor, or Regent/mayor in accordance with their authorities and such transfer is not contrary with the applicable laws and regulations. 
    The Central Government, after consultation with the House of Representatives, can determine policy on giving priority to minerals and coal for domestic interests, including the authority to determine production levels for each commodity in each year on a Province-by-Province basis. This provision may have an impact on the annual production limit of a company holding a license to export to the international market.  

    As we are  aware inthe Oil and Gas Sectors in Indonesia, Domestic Market Obligation Private (DMO) is also regulated where 25% of its annual production has to be sold for  Domestic Needs. In the Coal Sectors, it appears that Coal commodities are also needed by the Local Power Plant,  by which  DMO on Coal shall also be implemented.    

    Government  Regulations will be made for implementing this DMO ruling.

    Holders of IUP and IUPK must increase the value of their minerals and/or Coal resources through Mining, processing and refining, and the use of the minerals and coal. Accordingly, they must process and refine the minerals and coal domestically. This provision are also found in the existing COW for General Mining of Cooper, thus  this  is a continuation of the policy of the Government which are also found and implemented by other Countries. 

    A license holder can cooperate with other holders of Production Operations IUPs for the same minerals and coal processing and refining. 

    The companies can either build their own processing/smelting facilities or use existing processing/smelting facilities in Indonesia owned by other parties. Relating to the Cooper Product of PT Freeport Indonesia, PT Smelter in Surabaya was the realization and implementation of this smelting facilities requirement. 

    Existing Contracts of Work (CoWs) which are already in the production phase, have a 5 year grace period to comply with this obligation. 

    Sharing Net  Profits ot of Coal production : 

    Holders of Production Operations IUPKs for metal minerals and coal must pay a production fee of 10 % of their net profits as of production, with 4 % going to the Central Government and 6 % being shared between the relevant province and regencies.

    A temporary suspension can be granted to a holder of an IUP/IUPK, in case of force majeure, or conditions which hamper mining activities, cause some or all mining activities to cease or the environment can no longer support the mineral and/or coal production activities. This temporary suspension will not reduce the duration/ term of the IUP. 

    The duration of a Temporary Suspension may be up to 1(one)  year and is extendable once for 1 (one) year. 

    Divestment  : 

    After 5 years of production, all companies must divest any shares owned by foreign parties to the Central/Regional Government, a State/Region owned enterprises or local companies. This provision will be regulated more  further through a Government Regulation.
    Usage of Local / National Mining Services.

    Holders of IUPs or IUPKs must use local and/or national mining services companies. If no local companies are found available, foreign companies whom are deemed as Indonesian legal entities may be used. Holders of IUPs and IUPKs may not use subsidiaries or affiliates to provide mining services, unless Minister of Energy and Mineral Resources approval is being obtained. 

    Corporate Crime .

    The New Mining Law No. 4 Year 2009 adopts  the concept of corporate crime. Sanctions can  be imposed on Contractors as legal entities. If crime is committed by a legal entity, the legal entity and/or its management will be charged with the crime. If found guilty, they are ordered to pay the regulated fine plus an additional 1/3. Besides the criminal sanctions, the business license and legal entity status  of such Company can be revoked.
    Any dispute arising from the implementation of an IUP, IPR or IUPK is to be settled through the courts and arbitration domestically under the prevailing laws

    Transition Period.

    Existing CoWs and CCoWs remain valid until the expiration of their terms. However, the contract terms and conditions must be adjusted to the provisions of the New Mining Law within 1 (one) year of the enactment of the New Mining Law 12 January 2010 except concerning state revenue.

    It appears that this New Mining Law does not rule any transitional provision for KPs (Mining Authorizations) issued to Indonesian companies regarding whether KPs already issued will remain valid and whether they must be adjusted to the New Mining Law, as is the case of the existing CoWs and CCoWs as described above. It appears that this may be  further regulated in the implementing regulations.

    The implementing regulations (Government Regulations, Ministerial Decrees and directives) for the implementation of the provisions of the New Mining Law, are to be made  within 1 year after the enactment of this New Law No. 4 Year 2010. 

    INDONESIA: CONTRACT AWARD FOR PLANNED $137,000,000 COAL MINING PROJECT, CLOUGH ENGINEERING [AUSTRALIA] - Order #: 01732000.: An article from: WWP-Report on Mining, Metal Making and Conversion

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