Delayed implementing regulations. An opportunity for better rules? Vol 128
The Ministry of Mines & Energy, along with various industry associations, have been most generous in their time and effort over the past Covid19 year to present, and participate, in a variety of webinars and public discussion forums.
On the 16th June 2021, Tambang magazine and Armilla & Rako law firm held a face-to-face focus group discussion in Jakarta on “Satu Tahun Minerba; RPP Mnierba dan kepastian berusaha Pertambangan” [One-year Minerba; Minerba RPP and certainty in mining business]. Dir Jen Minerba (Ridwan Djamaluddin) and 7 speakers from mining industry associations talked about the path ahead to improve the Indonesian mining industry. Eva Armilla Djauhari of Armilia & Rako Law acted as host and moderator.
The Dir Jen addressed the key point on the development of the implementing regulations, and went on to briefly outline other Mines Department concerns about attracting investors. The presentations from the industry associations outlined a number of points where clarification and discussion could lead to a better outcome for private participation in the exploration and mining industry.
Some underlying themes of this discussion group was 1) the need to improve certainty for investors, 2) the growing difficulty in accessing land, and 3) the ever more complex bureaucracy the Mines Department is facing in getting consensus for developing implementing regulations.
The speakers presented a vast amount of information, wherein this article includes a selective summary of points. It should be noted that this type of forum represents outlooks that may change over time, as the industry, and awareness of the industry, evolves. The discussion was undertaken mostly in Indonesian, and not all speakers presented accompanying slides. I apologize for any omissions or errors.
Director Jenderal Mineba, [Ridwan Djamalludin] mentioned that the revised mining law 3/2020 required implementing regulations to be issued within one year (June 2021). The Mines Department is developing one presidential regulation on the delegation of business licenses in the mining and coal sector, plus 3 RPP’s on; –
- Implementation of mineral and coal mining business activities,
- Mining area,
- Guidance and supervision as well as reclamation and post-mining in the management of mineral and coal mining business.
The development of these regulations requires harmonization with other ministries and socialization with numerous government agencies, each with their own complexities. The expected earliest issuance of these regulations is December 2021. None of the industry associations have seen a draft of these proposed implementing regulations. It is widely recognized that many investors in the mining industry are waiting for the issuance of these implementing regulations as the next major step to encourage investment.
Association of Indonesian Geologists Professionals [Ikatan Ahli Geologi Indonesia IAGI] chairman Muhammad Burhannudinnur delivered a well-prepared presentation on “Where is the implementing regulations on Law 3/2020 going?”. Some of these points are summarized as; –
1. Urge the ministry to discuss the draft of the implementing regulations with industry associations and other stakeholders, with sufficient time and opportunity to affect positive feedback.
2. Encourage exploration through improved guarantee of investment in exploration, coordination with investment strategy and ease to undertake exploration activities.
3. The auction system for new tenements to encourage greenfields, change the “right to match” criteria to give more certainty to the original investor, reduce the data & information compensation fee, and adjust other counter-productive elements.
4. Reporting of exploration data to be undertaken by a recognized Competent Person using internationally recognized terminology. Permits to extend the exploration license maybe linked to past exploration performance, and to source of future exploration funds.
5. Further transparency sought on the Ministries process of issuing Operational Production license after completion of exploration permit.
6. Investors may favour minerals that are easy to comply with down stream requirements, and avoid other minerals that are less attractive, thereby leaving much on Indonesia’s potential resources under explored. Options over structure of investment may be reconsidered.
7. Permits for overlapping commodities have a number of scenarios that are in question.
8. The operation of the proposed Mineral Resilience Fund is as yet very unclear.
9. Further clarity sought on what happens to the data handed to the ministry upon the termination of a tenement.
Association of Indonesian Mining Professionals [Perhimpunan Ahli Pertambangan Indonesia PERHAPI] chairman Rizal Kasli, delivered a well-prepared presentation titled, “Business Assurance in Mining”. Rizal started out by identifying a number of areas where law 3/ 2020 has brought improvements to the mining industry, particularly in the areas of mining governance, alignment of national interests, legal certainty, ease of investment and environmental management. Rizal went on to provides a number of recommendations to improve the private sectors involvement in exploration, mining and commodity inventories:
1. Geology & Exploration; – Develop a better divestment obligation policy, recognize alternative investment options for junior miners, and review the Mining Data & Information Centre operations.
2. Land & Permit Conflict; – strengthen the One Map Policy and integrate with an updated land surveying system, along with preparation of a standardized land acquisition system.
3. Mineral & Coal Downstream; – Regular review and update the grand strategy for the management of the nations mineral and coal industries, along with stronger and more transparent monitoring reports.
4. Artisanal & Small-Scale Mining (IPR); – Support improvements in small scale mining through various local and national assistance programs, and to strengthen the penalties for poor mining practices and law enforcement for non-licenced miners (PETI).
5. Mining Business Supervision; – Improve the monitoring conditions through engaging more trained mines inspectors, closer collaboration between government bodies, integrated data bases and the ongoing development of operational standards.
Other concerns that bring uncertainty to the mining industry are; –
a) The transfer of authority from provinces to central, and delegation of some functions back to the provinces has not been fully implemented, and is unresolved in special administrative districts such as Aceh province where a double tax payment system operates under local law (PERDA) for mining minerals and coal.
b) Socialization of the revised law 3/ 2020 is not yet complete in many parts of Indonesia.
Indonesian Mining Institute (IMI) chairman Irwandy Arif spoke on the development of governance in the mining industry. Some key discussion points include; –
1. The urgency of developing implementing regulations in support of law 3/2020 to improve governance, align national interests, provide legal certainty for investors and encouraging environmental management. The implementing regulations must be systematic, simplifying regulations and in line with other regulations.
2. Crucial issues include strategic objectives and strengthening rules of value-adding, share divestment, land rights, continued operations, increase exploration etc.
3. Challenges facing the mining sector include supporting sustainable economic growth, building a resilient society, establishing good governance etc.
4. Improvements to national mining governance include; – strengthen the legal framework for mining and improve the mining management planning. Also, to increase exploration through research, encourage junior explorers, obliging producers to explore more, and development of a Mineral & Coal Resilience Fund (DKC). Improvements are seen in delegating certain licensing responsibility to local governments (principally in the non-metallic rocks and peoples mining areas and IUP sales for all commodities).
5. Suggestions for improving national mining governance include emphasizing sustainability and transparency in mining (emphases on markets and reserves).
The role of industry associations.
This focus group discussion is one significant way in which people can have some direct input to the Ministry for the ongoing improvement of the industry, and the well-being of the miners and investors. I encourage individual professionals, and companies, to join such associations to better liaise and influence policy and regulation.
Join an association and have your voice heard.
Bad times can hope for good policies.
The exploration, production and refining of the Indonesian oil & gas industry has been in decline for some years. Many of the long term committed international companies have gradually left Indonesia, as the business environment is seen to be less favourable, despite the relatively high geological and human capital potential of Indonesia. Senior Indonesian old hands that helped build this industry say it is past the time for incremental changes, and Indonesia is now in desperate need for a “significant breakthrough” in policy for the industry to begin to recover.
Similarly, it is well recognized that the greenfields exploration of minerals and coal has faltered badly. The current policy of incremental steps to encourage the mineral and coal exploration industry have not been sufficient to stimulate the broader mineral and coal industry. The recent Law 3/ 2020, Omnibus law and some others close to the Mines Department seem to favour this incremental policy, despite there being no marked improvement in greenfield exploration activity.
The suggestions brought forward by the various industry associations in this Focused Group Discussion have identified some of the areas to improve upon. The old saying “good times yield poor policies, while bad times can yield good policies”. Indonesia’s slow emergence from the global covid19 pandemic financial disruption appears to present “bad times”. We may hope the delay in issuing the new implementing policies will see some breakthrough good policies to meaningfully stimulate the mineral and coal exploration and mining industry. In the past, the Mines Department has tried to issue a handful of new tenements through the auction system. It is well recognized that the success ratio is about 1 : 100 for developing a new mine from a greenfield exploration, and the time between issuance of new tenement to start mining can take 5 to 25 years. A “meaningful” stimulation of the mining industry needs at least a hundred new tenements to be issued across all of Indonesia every year, and continued issuance over many years. Every province seeks new investment in exploration and mining.