Understanding Indonesian Goals in Mining

• The Legal Sources of the General Mining Law in Indonesia is Article 33(2) and (3) of the Indonesian Constitutional Law.

What is Article 33 (2) and (3) of the Indonesian Constitution LAW ? Why you as a Foreign or Local General Mining Company who operates in Indonesia, must really understand this Famous Article which was "Planted" in the Indonesian Constitutional Law by the "Founding Fathers" of this Great Nation of Indonesia. Well, let me try to explain to you why this Article 33(2) and (3) of the Basic Constitution Law 1945 is really significant to be understood by the Mining Companies operating in Indonesia.

• Pursuant to this Article it states that the branch of productions which are important for the State and which exploits the mainstream live of the majority people shall be under the sovereign of the State.

• The earth and the water and the natural richness which is contained therein shall be under the control of the State and be used at the most for the welfare of the people.

• Furthermore the basic principal of the control and the beneficial of the natural richness upon the various mining minerals for the social welfare of the people in the mining activities shall be implemented under the Indonesian Mining Law.

• The Indonesian Nation as the holder of the Ownership Title upon the natural richness in the form of various mining minerals which is contained in the earth and water within the Indonesian Territory which is the "Indonesian Mining Legal Area", shall thereafter "grants the power" to the State to regulate and makes benefit of such national richness with the utmost to achieve the justice and prosperity of the society as a whole.

• Thus based on the above principals, The State has the Authorization Right ( Hak Penguasaan) upon such National Richness, whereas the execution/the performance of the State Sovereign is called " The General Mining Authorization".

• Since the State posses the right to control or the Authorization Right ( Hak Penguasaan) upon the various mining minerals, than the State cannot not grant other rights which is more larger then such Authorization Right.

• Accordingly, what can be given by the State is the General Mining Authorization Enterprise ( Kuasa Usaha Pertambangan Umum ) or abbreviated (Kuasa Pertambangan Umum) General Mining Authorization, which covers the general mining efforts ( usaha-usaha pertambangan umum : general survey, exploration, exploitation, pengolahan ( treatment ) and pemurnian (purification), transportation and selling.

• Furthermore, the State shall give the performance of the General Mining ( Pengusahaan Pertambangan Umum) to the holder of the Mining Authorization.

• Since there are many various mining minerals, the State needs to determine the categorization or grouping of such mining minerals and the performance of such mining minerals.

Agung Supomo Suleiman

Partner Law Firm Suleiman Agung & Co

http://www.sacolaw.blogspot.com

Email : agungsacolaw@telkom.net

Mobile Phone : 0816830647

Slight View on the Mining Law in Practice

The Mining Law in Indonesia regulates :

1. Ownership
2. Grouping of minerals according to their importance
3. The way mining will be conducted by different parties
4. The role of the Local Government
5. The way in which mineral development can be licenced or authorized.

• As regulated under the Mining Law, minerals are divided into 3 Groups based on the historic role, present and the future potential and possible economics significances each of such minerals to the state and the people. These grouping are being determined by a Government Decree from time to time.

• The Groupings in general are divided into Group A : namely the Strategic Minerals.

• Under this Strategic Minerals are among others : oil, asphalt, wax, natural gas, coal, brown coal uranium, radium, and other radioactive minerals, nickel, cobalt, tin .

• Following thereafter is the Grouping B which is the Vital Minerals. This Vital Minerals among others are : iron, manganese, copper, lead, gold, silver, platinum, diamond, silver, mercury, sulphur.

• These groupings of mineral shall have impacts on the issuance of the mining licenses and /or royalties.

• While C Minerals are handled by the Provincial Governments. These C Minerals are usually relating to among others limestone, sand, gravel which are developed under a Regional Mining Permit ( Surat Izin Pertambangan Daerah or SIPD) which is issued by the Governor and can cover an area of 25 ha.

Based on the Mining Law, the Mining of Strategic Minerals can only be undertaken by a government agency appointed by the Minister or a state enterprise. Mining can be licensed or authorized in 5 ( five) ways :

• 1. Ministerial Assignmentt to carry out mining by government bodies or agencies ( Penugasan Penambangan) as in the case of BATAN which is the atomic energy agency being assign to carry out the development of radioactive minerals.

• 2. Issuance of Mining Authorization ( Kuasa Pertambangan or KP). This KP are granted to Mining Companies (sate or private) or to Indonesian Individuals.

• As we are aware there are different stages of Mining Authorization which can be applied for.
• In applying the Mining Authorization, we have to submit the required maps and other administrative requirements.

• In practice the Mining Authorization will be given for a limited time. Reasoning of this is usually related to guarantee the seriousness of the applicant / the right holder in performing its obligations. If such right holder is not performing any exploration activities for a certain period of time, in a certain Area, the potential minerals in such location will be idle, which on the other hand, can actually can be explored, exploited by the other more serious mining companies to produce the mineral products.

• 3. Contracts for Foreign or Domestic Companies ( Contract of Work or Coal Cooperation Contract). This is based on regulations under the Mining Act combined with the Foreign Investment Act.

• 4. License or Permit for People's Mining. This License is granted to small traditional or manual mining operations which are using simple equipment and technology. Usually it is conducted in a small scale or through mutual cooperation using simple tools and equipments.

• 5. Authorization by District Government ( Surat Ijin Pertambangan Dearah - SIPD) This usually in practice applies to Group C Minerals.

• From my experience, as In house Legal Counsel in a Mining Company who conducts Mining Operations in Copper, such Company, who operates in Indonesia under a Contract Of Works ( Licence/Authorization) needs a certain volume of limestone for processing its product in the Mill Plant. The Company who conducts the limestone operation holds the Group C Minerals license issued by the Local Government.

• This Limestone Company was granted work by the Copper Mining Company to manage the usage and supply of the limestone in the Mill Plant. Exiting isn't it.

• Thus, in practice, you may found situation in the field operation at Site, where a cooperation mechanism, may arise between the Big Cooper Mining Company who is exploring, exploitation and producing the Cooper Mineral which falls under the Group B Vital Minerals, and the Limestone Mining Company who is granted the Authorization by the District Government for its C Mineral of Limestone.

Well, the above is a slight view of the Mining Law and its real implementation in the real practice operations which you may find in the Mining Field Operations in Indonesia, which hopely will be usefull for you readers who are interested in reading Legal aspects related to Mining Operations in Indonesia. Date : November 1 , 2008

Agung Supomo Suleiman

Senior Partner Law Firm Suleiman Agung & Co

Blog : http://www.agungssuleiman.blogspot.com

Email : agungsacolaw@telkom.net

HP : 0816830647