Draft changes to the Mining Law – a review.

Draft changes to the Mining Law – a review.  (Vol 91)

Background.

The Ministry of Energy and Mineral Resources’s (Mines Department) review of the Regencies handling of the local mineral and coal tenements (IUP’s) indicated widespread serious mismanagement. The Mines Department then issued a Clean & Clear (C&C) program of compliance registration, and later transferred the authorization and management over the IUP’s from the Regents to the Provinces & Central Government. However, this transfer of authority contradicted the Mining Law 4/2009, which assigned such authority to the Regencies and some Cities. A revision of the Mining Law is required to fix this legal certainty issue, and thwart potential legal claims from the Regencies against the Mines Department. The Mines Department has been preparing for a new era of management for the exploration and mining industry. Much of the C&C issue has been resolved, the One Map portal has been launched, some out of date regulations have been excluded, the Permen 11/2018 has been issued to tidy up some regulations and prepare for the issuance of new tenements, and a system of district mining inspectors has been put in place. Amendments to the Mining Law was listed as a priority for the Indonesian Parliament in 2015 and subsequent years but was continually delayed. The President has stated he wishes the amended Mining Law to be undertaken by mid-2018. This new schedule would support the Presidents pre-election campaign to show that business is being stimulated to grow the economy and create jobs.

Draft Amendments.

It appears that the Mines Department has prepared a draft amendment, dated 24 January 2018, to the Mining Law 4/2009 that is designed to update and improve to the performance of the Mining Law. Under the proposed new Mining Law, the Central and Provincial governments shall have similar authorities and obligations in managing the mining industry. One key difference is that the Central Government manages the State Enterprises (SOE’s / BUMN), Special Mining Licenses (IUPK), Foreign Investment players and cross provincial tenements. The Regencies and Cities no longer have direct authority to manage the mining sector but are to be consulted on some issues. This proposed draft amendment also allows for some general updating of the mining law in line with the recently issued ministerial regulation (Permen 11/2018) that revises the process of issuance of new tenements, supporting commodity pricing authority to the Ministry of Mines, along with modifications to various corporate compliance requirements etc. Some proposed draft amendment articles are already outdated by the Permen 11/2018, and current practices in the Mines Department.

Draft Document & Review Process.

At the time of this review, this writer could not find the draft amendment on the Mines Department (ESDM) web site but obtained it from industry media. It would seem this draft may have been prepared by different Lawyers within the Mines Department, as some articles seem appropriate and rational, while others seem to reflect “hot politics”.

A separate draft amendment has been reported in the media in early March, as being prepared by Commission VII. It is understood this second draft has been seen by a very restricted number of parties and is being tightly withheld from a wider circulation. This would suggest the Parliamentary Commission VII is less transparent and less socially interactive than the Ministry?

It is generally expected that such drafts are modified or replaced from time to time by the Mines Department and undergo further reviews and changes at the Parliamentary Commission VII stage. This Mines Department draft amendment may not be the final version but may provide an insight to the Mines Department’s recent outlook.

This article was prepared by inserting the Mines Department draft amendment of the mining law onto the existing Mining Law 4/2009 using track changes, and Google English. Most of the proposed draft articles mirrored the existing articles, with perhaps slightly more specific wording. This review focusses on a number of aspects largely outside of the main points to change authorization from Regencies to Provinces & Central Governments,and overlooks some aspects that are already incorporated in Permen 11/2018.  This review article simply notes the nature of the draft in three broad categories, that of apparent increased ministry control, clarity and lack of clarity. Other reviewers may identify different aspects of interest from this draft amendment.

Please note this review is not made by a lawyer, nor in consultation with a lawyer, and should not be relied upon for legal or commercial purposes. I apologize for any errors or misunderstandings that may be contained in or arise from this article.

Increased Ministerial Control.

• The draft revised definitions (25) of Environment Impact Analysis no longer refers to “Amdal” but EIA, suggesting that future changes to the Amdal system (under the Ministry of Forestry & Environment) may not necessarily be applicable to the mining industry, perhaps giving the Minister of Mining options for more control over the mining sector.
• The draft new Article 4B on the control of minerals & coal suggests that mining SOE’s / BUMN shall be formed under the Ministry of Mines and shall be directly responsible to the President. The roll of the Minister for State Owned Enterprises (SOE) is not mentioned, suggesting the Minister of Mines has more direct control over the mining sector.
• The new draft Article 5A on Planning states that the Government will be more responsible for the overall planning of the mining industry, rather than simply monitoring. Emphasizing the Minister of Mines has more direct control over the mining sector.
• The new draft Article 6.i.1 places the permitting for processing rare earths and radioactive minerals under the Minister of Mines. Presently the Minister of Mines recognized the development of radioactive minerals as being under BATAN.
• Article 11 is on the Central & Provincial governments roll in conducting research, particularly in preparation of determining mining zones. This draft proposes that research can be assigned to SOE’s in the field of Mining. When this Mining Law was introduced in 2009, there was a rush of regencies applying for state funding to conduct geological research, but all was turned down by the Ministry of Finance and Ministry of SOE. This seemingly unnecessary specification to allow Mining SOE’s to conduct research may be designed to open new research business sectors that will be under the control of the Minister of Mines?

Clarity for proposed draft;

• Article 22 on small scale mining for alluvial deposits repeats the defining of the river banks for mining. The proposed draft further expands / clarifies this to include “terrace, floodplains and ancient river deposits”.
• Article 47 on the term of coal production permits is proposed in this draft to have separate production periods for coal mines for sale of coal, and coal mines for integrated steam power plants etc.
• The elucidation of Article 47 gives a definition of “economic value” as the potential or value of Mining products owned or contained within a WIUP, which can be calculated with the value of money in accordance with the period of its production. Perhaps this definition (and other definitions within the elucidations) could appear in the initial list of definitions.
• The management of overlapping areas to hold mining rights for different commodities is expanded and more specifically detailed in a number of articles.
• There is no longer a minimum IUP size area for metal minerals (Article 52 was 5,000Ha), non-mineral (Article 55 was 500Ha), coal IUP (Article 61 was 5,000Ha), while minimum size for rock tenements has been increased from 5 to 10Ha. Maximum size of area is retained.
• Elucidation of Article 67 on small scale mining sets out the definition of “Simple Mining technical equipment” means Manual Mining equipment using human power and mechanical Mining tools whose technology is still simple.
• Article 67 and accompanying elucidation on small scale mining sets out a requirement for applications for small scale mining to be signed off /validated by the local village head or such.
• Elucidation of Article 68 defines “community group” is group formed and coming from society domiciled around WPR” for application for small scale mining permit.
• New Article 70A prohibits small scale miners transferring their rights (IPR) to others.
• New Articles 87A – 87E provide a list of headings for data management by the Government. Public access to this data will be available, as under legislation as per the regulations on public information disclosure.
• Reclamation and post mining used to be mostly restricted to revegetation / reforestation. The Elucidation of Article 99 now allows other land use activity to be introduced, including irrigation, building, tourism etc.
• New Article 103.6 defines “smelter” is a Mining Processing and Purification facility, which serves to increase certain Mineral content to reach a level that meets the standard as the raw material of the final product. This definition is somewhat broader than other definitions expressed by the Ministry of Mines (change the chemical nature). For example, this definition may allow low grade zircon to be used to produce the end product of sand paper etc.
• New Article 103.6 &.7 introduce the concept that the Government may offer fiscal & non-fiscal incentives (eg. extended license period) for those who implement smelter / coal upgrading activity.
• New Article 115A recognizes that the public is prohibited from obstructing / interfering with registered mining activities.
• Article 141 specifies compliance and reporting shall be undertaken through authorized mine inspectors in each region.
• Article 145 on Public Protection has improved the wording to direct legal claims more specifically against illegal miners, legal protection from community threats and disputes etc.
• Article 151 on administrative sanctions are proposed to be more inclined towards a series of fines, rather than the prompt harsh suspensions of permits approach. This would seem to be more accommodating way to get the mine back into compliance.
• Article 158 (illegal mining) & 159 (false reporting) & Article 160 (undertaking production on exploration license) & Article 161 (operating others IUP) on penal provisions proposes lighter prison terms (from 10 to 5 years) but heavier fines (from Rp 10 to 100 billion).
• New Article 161A proposes jail (2 years) & fines (Rp 5 bill) for parties illegally transferring mining permits to others.
• New Article 169C & 169D transition provisions require existing IUP’s etc to remain valid and adjust to the revised law within 2 years. This may clarify the process for some parties that obtained their permits from the Regions, and now come under the Province or Central Governments. Though 2 years seems to be a long time for such transitions.
• Article 170 proposes COW holders transition to be 2 years to continue selling some ore, and to complete smelter construction.

Lack of Clarity.

• Article 112 sets out the foreign shareholding divestment requirements. However, the draft new Articles implies that ALL foreign shares must be divested, not just divestment down to 49%. The draft regulation confirms the order of divestment priorities to Central & Provincial governments but does not follow the new Permen 11/2018 divestment sequence to SOE’s & BUMN / BUMD then private auction but goes to Indonesian Stock Exchange. In the case where the miner is also undertaking smelting or power production, then the foreign party with more than 51% shares can divest (all?) their shares after 10 years from start of mining activity.
• Article 118 -122 (existing & draft) similarly sets out that a tenement can be relinquished by submitting a letter of request, plus the Governor / Minister approves the relinquishment, “after fulfilling its obligations”. There are cases where the relinquishment has not been approved due to the Governments personal or political objections. There needs to be further consideration on these Articles.
• The draft new Article 123A, and other articles refer to the undertaking of research on relinquished and other areas. This proposed draft does not provide any specific permit process for undertaken site related research.
• It would seem the new Article 123A. 2 intends to carry on mining after the formal deposit or its time period has been exhausted. This would seem to be contrary to many parts of the Mining Law?
• The draft new Article 125A on mining service providers seems to have been overtaken by clearer legislation in Permin11/2018.
• The draft Article 129 seeks to increase IUPK net profit taxes to the Central and Local governments from 4 & 6% to 5 & 10% and proposes changes to the division of Provincial profit tax amongst the Provincial and Local governments. Parts of this draft have been overtaken by Permen 11/2018.
• New draft Article 145A propose each IUP / IUPK implement social responsibility programs in order to achieve sustainable development. There is insufficient consideration that sustainable development may not be a reasonable achievable target – perhaps the mine has too short a time period, the community may be too isolated etc. Perhaps “towards sustainable development” may be more realistic.
• The new draft Article 169A & 169B of the Transition Provisions seem to be directed at taking over the COW & PKP2B tenements after they expire, and in many ways contradict much of the Mining Law. In particular 169B (4) wants the right for business entities that have conducted research to directly apply for the areas.
• The new draft Article 170 & 170A wants to limit the export of processed materials for 2 years, and that export duties should be used to support the construction of process & refining facilities. New Article 172A sets out the period for applying for extensions of Operation. It would seem these Articles are not in synchronization with the present application of the Mining Law.

Or no amendments to the Mining Law?

At the recent (March) Euromoney Conference held in Jakarta, some prominent speakers postulated that it would be simpler for the Mines Department to issue implementing regulations rather than to try to amend the Mining Law. This rational reflected the view that parliamentarians are likely to be too busy getting re-elected than to bother with legislation.

This no-amendment proposal was reinforced by the Minister of Mines (Ignasius Jonan) at his recent presentation to the Indonesian Miner seminar held in Jakarta (April). The Minister feels the ease of doing business can be supported by further stability in the Mining Law. This law has been in for less than 10 years, and the Minister feels it is NOT necessary to amend the law, but to manage the industry through easier to develop ministerial regulations etc.

Many Ministers have emphasized and take pride that Indonesia is a country governed by laws. There was a significant public campaign to object to the Mines Department issuing regulations (not laws) to rescind the total raw ore export ban. This trend to govern through regulations may be convenient for the Minister, but without amending the law, there may be a longer term negative impact on the “peoples” confidence that their elected parliament may be sidelined. Governing through regulations may also undermine confidence in long term investments by both domestic and foreign players. As the old joke goes: – Brittan rules the waves, but Indonesia waves the rules.

We may wonder why the proposal to amend the Mining Law has been on the Parliaments priority list for so many years, but there has been such lack of action. Perhaps the Mines Department’s vision of the exploration and mining industry is not well harmonized with industry, or with various political factions.