Decree 110 K & New Mining Law 3/2020 – The big clean out? Vol 117
Background to COW & CCOW’s.
Indonesia first introduced the Contract of Work (COW) system following the 1967 Mining Law, and refined the contract terms over successive “generations”. COW’s could be up to 100% foreign owned, and were regulated further under Mining Law 4/2009. Mineral COW’s and Coal CCOW’s typically had terms of 1-year general survey, 3 years exploration (with extensions of 1-2 years), and feasibility study period of 1 year with 1-year further extension. Staged relinquishment of tenement area was required, typically being 25% on completion of general survey, 25% at end of 1st year of exploration. The company could willingly terminate the contract at any time.
The government no longer issues contract-based concessions for new mining projects. Holders of CoW’s (Kontrak Karya or KK) and Coal Contracts of Work (Perjanjian Karya Pengusahaan Pertambangan Batubara/PKP2B or CCoWs) should convert their contracts to IUPK’s/IUPK-OPs before the expiration of the contracts, as stipulated in PerMen 15/2017 (later revoked and amended by Ministerial Regulation [Peraturan Menteri or PerMen] 11/2018 without substantial differences). Prior to the introduction of the amended new Mining Law 3/2020 [ML 3/2020], all remaining 34 CoW holders and 68 CCoW holders have signed the amendment to convert to IUPK.
Decree 110K.
On the 10th June 2020, the Minister of Energy and Mineral Resources [ESDM] issued decree 110K/30/MEM/2020 [ Decree 110K] to revise the earlier decree 3646/30/MEM/2017, giving implementing instructions to the Director of Mineral and Coal. It would seem this Decree 110K is aimed at Contract of Work’s and Coal Contract of Work companies that have not yet completed their exploration phase. It is recognized these companies are not moving fast enough, but can extend their exploration activity through compliance with the terms outlined in this Decree 110K.
This Decree 110K sets out the technical criteria required for extensions for COW & CCOW holders still in the exploration stage. Requests can be based on: – 1) difficult access, including forestry restrictions, 2) targets under more than 300 m depth, 3) high level of complexity in geology, geotechnical, hydrology, metallurgy, 4) exploration in hydrothermal zone, 5) change in land status or spatial plan. Administrative compliance is sought with evidence of past compliance along with exploration planning and associated budget estimates etc. The decree goes on to outline the administrative procedures & letters for the applicant, evaluation of applicant, and other administrative process for the extended phase of exploration.
Requirements for the first-year extension include: –
- “Willing to place guarantee of exploration commitments at the bank government by 30% (thirty percent) or a maximum of USD 10,000,000 (ten million United States dollars) of exploration costs during the period of application for extension of 1 (one) year.”
- … the applicant is required to place a guarantee of exploration commitment in form of a joint account (escrow account) or bank guarantee (bank guarantee) to a state bank and submit evidence placement with the Director General of Mineral and Coal within period of no later than 7 (seven) working days after the warrant placement of guaranteed exploration commitments accepted;
- Holders of KK and PKP2B can submit requests for approval of disbursement guarantees for the first stage exploration commitments in accordance with application letter format.
- “Guaranteed exploration commitments that have not yet been drawn down with interest can be deposited into the state treasury through the bank of perception by the Director General of Mineral and Coal as a non-state revenue tax in accordance with statutory provisions if the KK and PKP2B holders cannot reach realization activity and / or cost realization of at least 70% (seventy percent) of planned activities or exploration costs in the operational time no later than 45 (forty five) calendar days before the end of the decision letter for the extension of the exploration phase;” (simple translation)
Some general observations on the decree; –
- This Decree is supported by ML 3/2020 Article 42 (1) The period of Exploration activities as referred to in Article 42 [Minerals] and Article 83A [for coal] letter a and letter e may be extended for 1 (one) year each time the extension has been fulfilled. (2) Further provisions regarding the granting of an extension of Exploration IUP as referred to in paragraph (1) shall be regulated by or based on Government Regulations, (Simple translation).
- The list of consideration regulations, seems to give list of which regulations are being carried forward under the ML 3/2020. These include GR 23/2010, 8/2018, 55/2010, 78/2010, along with Presidential regulations 68/2015, 105/2016, and Ministerial Regulations 25/2016, 25/2018 and amendments, plus 7/2020.
- Note that ML 3/2020 Article 78 for exploration special mining permit requires the company to state a number of details, including the “investment budget”. Note also that ML 3/2020 Article 6 states ‘The central Government in the management of Mineral and Coal Mining, is authorized to a. to determine the national Mineral and Coal management plan.” Article 8A expands on the concepts of this National Management plan to include the regional development plan 8A (4). It is hoped this National & Regional Development plan will not be used as motivation by the Mines Department to push up the company’s exploration budget as a requirement for approval.
Discussion on Decree 110K.
Decree 110K recognizes there are obstacles outside the immediate scope of ESDM regulatory control, including forestry or geological difficulties etc. On the surface it seems the Mines Department is generous in allowing COW / CCOW holders to extend their exploration periods. However, Decree 110K does not make any indication of how such difficulties may be overcome, or that the ESDM is willing to assist, such as working through the MOU between the ministries of Mines & Forestry to allow miners to carry out their exploration obligations. The inclusion of a financial guarantee from the company for an extension is likely to disincentivize the COW / CCOW companies from applying for an extension, and thus lead to relinquishment.
Who may be impacted?
ML 3/2020 article 76 now recognizes ONLY two phases of activity for Special Mining permits [IUPK] that shall eventually replace the COW / PKP2B system. Article 76 allocates an Exploration permit stage that includes general survey, exploration and feasibility study. The second permit stage of Operation Production [OP] includes construction, mining, refinery / smelting as well as transport & sales.
There are 7 Coal Contracts of Work [PKP2B] and 16 mineral contracts of Work [KK] that would seem to be directly impacted by Decree 110k’s requirements for extension.
Table 1. Petromindo year books of companies in exploration & related stages.
| COMODITY | COMAPNY | STRATUS | LICENSE | LOCATION |
| Coal | Batubara Selaras Sapta | Exploration | PKP2B 3rd Gen | East Kalimantan |
| Coal | Bumi Laksana Perkasa | Exploration | PKP2B 3rd Gen | East Kalimantan |
| Coal | Juloi Coal | Exploration | PKP2B 3rd Gen | Central Kalimantan |
| Coal | Kalteng Coal | Exploration | PKP2B 3rd Gen | Central Kalimantan |
| Coal | Pari Coal | Exploration | PKP2B 3rd Gen | Central/East Kal. |
| Coal | Ratah Coal | Exploration | PKP2B 3rd Gen | Central/East Kal. |
| Coal | Sumber Barito Coal | Exploration | PKP2B 3rd Gen | Central/East Kal |
| Au-Mo | Citra Palu Minerals | Development | KK 6th Gen | Central/South Sulawesi |
| Au – Cu | Gorontalo Minerals | Development | KK 7th Gen | Gorontalo – Sulawesi |
| Zeolite | Paragon Perdana Mining | Development | KK 4th Gen | Lampung – Sumatra |
| Ni -Co | Gag Nikel | Feasibility | KK 7th Gen | West Papua |
| Au dmp | Gorontalo Sejahtera Mining | Feasibility | KK 5th Gen | Gorontalo, Nt/Cent Sul |
| Au dmp | Iriana Mutiara Idenburg | Feasibility | KK 6th Gen | Papua |
| Heavy sand | Kumamba Mining | Feasibility | KK 6th Gen | Papua |
| Au | Mindoro Tiris Emas | Feasibility | KK 7th Gen | South Sumatra |
| Au dmp | Pacific Masao Mineral | Feasibility | KK 6th Gen | Central Kalimantan |
| Au dmp | Pelsart Tambang Kencana | Feasibility | KK 7th Gen | South Kalimantan |
| Au dmp | Sorikmas Mining | Feasibility | KK 7th Gen | North Sumatra |
| Ni- Co | Iriana Mutiara Mining | Exploration | KK 6th Gen | Papua |
| Au dmp | Kalimantan Surya Kencana | Exploration | KK 6th Gen | Central /West Kal. |
| Au dmp | Sumbawa Timur Mining | Exploration | KK 7th Gen | West Nusa Tenggara |
| Au dmp | Tambang Mas Sangihe | Exploration | KK 6th Gen | North Sulawesi |
| Au dmp | Woyla Aceh Minerals | Exploration | KK 6th Gen | Aceh |
*dmp means “associated elements”
Suspension
Chapter 14 of ML 3/2020 deals with suspension. Suspension’s due to “obstructive situations” continues to apply, though suspension now includes a further consideration of “environment carrying capacity’. At this point it may be assumed that current implementing regulations on the application of a suspension remain valid for the moment. Therein the period of the issued tenement refers to the “active’ period. Obligations for extension of exploration period may come after the tenement is reactivated and completed its allotted time period.
According to the 2019 Annual Report from the Ministry of Mines & Energy [Laporan kinerja tahun 2019 – ESDM] there were 48 companies that did not produce coal, including 16 CCoW [PKP2B], 1 IUP-OP pusat, 31 IUP-OP PMA (companies with foreign ownership content). The ESDM 2019 report provides a table on issues facing the non-coal producing PKP2B companies.
Table 2 Non producing coal PKP2B companies.
| No | PKP2B company | Issue |
| 1 | Asmin BaraJaan | Land |
| 2 | Bahari Cakrawala Sebuku | Post mining |
| 3 | Batubara Duaribi Abadi | |
| 4 | Batu Alam Selaras | Facilities & infrastructure |
| 5 | Delma Mining corporation | Infrastructure |
| 6 | Dharma Puspita Mining | Post Mining |
| 7 | Gunung Bayan Pratama Coal | Reserves mined out. |
| 8 | Interex Sacra Raya | Economy |
| 9 | Intitirta Primasakti | Infrastructure |
| 10 | Kartika Selabumi Mining | Bankrupt |
| 11 | Lahai coal | Land |
| 12 | Mantimin coal Mining | Facilities & Infrastructure |
| 13 | Sarwa Sembada Karya Bumi | Land |
| 14 | Selo Argodedali | Social |
| 15 | Selo Argokencono Sakti | Land |
| 16 | Cakra Persada Mandiri | Economy |
Background to IUP’s
The Mining Law 4/2009 was introduced during a boom time in Indonesia for the exploration and mining of coal and minerals. Law 4/2009 stipulated a moratorium on issuing new local IUP permits, however the Regencies largely ignored this stipulation, claiming it contradicted the Regional Autonomy law. The Regencies often issued new IUP’s in exchange for local political support for their re-election campaigns or other reasons. The number of IUP’s spread all over Indonesia, and rapidly grew to more than 10,000. Many of these IUP’s undertook minimal exploration and were promptly converted from exploration to production status, to secure their typically 10 – 20-year licence validity. Often these IUP’s were touted to speculative investors, to genuine investors in exploration, or as a possible back door for other activities. The Central Mines Department finally developed the “Clean & Clear” (CnC) mechanism to control the issuance and renewal of these IUP’s. A few such IUP’s have been developed into ongoing productive mines, however others were hit-and-run short-term mines, some were explored but ran out of funds, while many others were only very lightly explored.
Extension for IUP’s.
ML 3/2020 Article 42 mentions that Exploration permits for IUP may be extended one year at a time, with further regulations to be issued for the implementation of such extensions. It may be anticipated that IUP’s may follow similar implementing regulations to Decree 110K for extension. Similarly, ML 3/2020 Article 39 for Operation & Production IUP’s may be required to provide an exploration serious bond, etc.
The Petromindo.com Indonesia Coal Book of 2020/2021 lists some 1,092 Coal IUP’s in 16 provinces of Indonesia, as registered (CnC & non CnC) with MINERBA as of May 2019. About 913 coal IUP’s of exploration or production stage shall expire after 2020, and 179 IUP’s may now be seeking extension.
The Petromindo.com Indonesia Mineral Book of 2019/2020 lists some 5,833 Mineral IUP’s in 30 provinces of Indonesia, as registered (CnC & non CnC) with MINERBA as of December 2017. About 1,040 mineral IUP’s of exploration or production stage shall expire after 2020, and 4,793 IUP’s may now be seeking extension.
What’s next.
There may be significant fiscal and administrative changes for IUP’s associated with the transfer of management from Province / District to Central Government
ML 3/2020 Article 36A requires all IUP and IUPK in the stage of Operation Production to carry out continued annual exploration activities. Article 39 requires the placement of a guarantee of seriousness of exploration. Article 100 mentions that IUP & IUPK companies must set up a reclamation deposit fund and post mining deposit funds. Article 112 A requires reserve resilience fund that is yet to be further defined. There are numerous other administrative and operational requirements.
The amended Mining Law 3/2020 Article 161B states; any person who’s IUP or IUPK is revoked or terminated and does not implement reclamation or post mining activities, or provide such guarantees may be sentenced to up to 5 years jail and fined up to Rp 10 billion, plus other penalties. Therein it is assumed the shareholders are personally responsible, and that some IUP & IUPK holders may find themselves with unexpected and untenable commitments.
Decree 110K may suggest the new Ministers thoughts on the nature of such guarantees for IUP tenements.
Conclusion.
We may see the Decree 110K and ML 3/2020 prompt a number of tenement holders consider the obligations to continue in the exploration & mining sector as undesirable, and to relinquish their tenements. Similarly, we may see less enthusiasm for new parties to enter the exploration and mining industry in Indonesia.
Let’s hope this Decree 110K is not a tiny carrot to hide a very big stick to “clean out” non-performing tenement holders from the system, but that the Mines Department will work to resolve the many issues facing the struggling tenement holders.