Laws and Regulation the Mining Industry

Principal laws: Article 33 of the constitution of the Republic of Indonesia of 1945; Law No. 11/1967 and replaces to Law No. 4/2009 on Mineral and Coal Mining, GR No. 32/1969, GR No. 79/1992 and GR No. 75/2001; and minister of energy and mineral resources Decree No. 1614/2004) (collectively referred to as the Mining Law).

GR No. 45/2003 on Tariffs of Non-Tax State Revenues Effective Within the Ministry of Energy & Mineral Resources (GR No. 45/2003).
Law No. 32 and 33/2004 on regional government. Law No. 41/1999 on Forestry and Law No. 19/2004; and Regulation P-14/2006 (the Forestry Law). Law No. 5/1960 on Basic Provisions of Agrarian Principles (the Agrarian Law).

Principal regulatory bodies:

Minister and Department of Energy & Mineral Resources (DEMR);

Minister and Department of Forestry; and Central (BAPEDAL) and regional environmental authorities. For centrally issued or agreed KPs and COWs: Minister of energy and mineral resources (MEMR) DEMR/the director general of mineral, coal and geothermal resources (DGMCG), formerly known as director general of geology and mineral resources (DGGMR)

For KPs provincially, regionally and municipally:

Governors of 33 provinces; and

regents (bupati) and mayors (walikota) of 428 regions (kabupaten) and municipalities (kota).

Mining activities in Indonesia are normally carried on by Indonesian limited liability companies (PT companies) formed under the Company Law. Foreign parties may only participate in mining activities as shareholders of PT PMA companies as indicated above.

Key Points of the UU MINERBA The new legislation is based on a permit system (Izin Usaha Pertambangan/[IUP]) that replaces the

Contract of Works (COW).

The central government and regency administration have the authority to impose existing policies, standards, guides, criteria and permits to all mining activities. The central government and regency administration have the authority to supervise, evaluate, and resolve conflicts without the need for international arbitration.

The mining permits can be revoked should the permit holders not comply with the law, are involved
in criminal offenses or declare bankruptcy. Government Officials who violate and misuse their authority in issuing permits will face imprisonment of 2 years and a fine of IDR 200 million. Illegal mining carries a maximum jail sentence of 10 years and a maximum fine of IDR 10 billion. The following have the authority to issue mining permits. Licenses for strategic mining operations are issued by the Minister for Energy and Mineral Resources. Licenses for non-strategic mining

operations covering areas in more than one province are issued by the Minister. Mines covering
areas in more than one regency will have to acquire the permits from the Governor of the province. Licenses for small mining operations with a maximum area of 25 hectares (61.8 acres) are issued by a local Regent (Mayor). The mining permit will be effective for a maximum period of five years only.

The permit cannot be transferred to other parties. The transfer of shares can be done only after the mines have become operational. Permit holders must submit post mining and reclamation plans before seeking a permit.

Permits for mining of metals and coal will be awarded by tender while permits for mining of

non-metals will be awarded after investors submit requests for mining concessions.
The new law will require investors to process all mining products into metal locally either by setting up their own smelters or by using existing processing facilities. The existing Contract of Works holders have 5 years to comply with this new regulation after the law has been enacted. All mining activities must prioritize the use of local workers and the

involvement of local companies. Foreign mining companies cannot involve only units or
subsidiaries of local companies. A Mining company should pay fixed production and exploration fees, reclamation and restoration costs. After five years of production, companies, whose shares are owned by foreign firms, must divest its shares to the government, state owned enterprises and national private companies. Production permit holders must allocate 10 percent of their net profits for the government, 4

percent of which will go to the central government and 6 percent to regency/provincial

administrations.

There are several Types of Permit for mining in areas that are not designated as state reserves. They basically consist of Exploration and Production permits. An Exploration Permit for Non-

Metals will grant a three-year-period with a concession area of between 500 hectares and 25,000
hectares. There is also an Exploration Permit for specific non-metals, especially those of high value that will grant operations only for a three-year-period with a concession area of between 5 hectares and 5,000 hectares or for a seven-year-period for a concession area of between 5,000 hectares and 50,000 hectares.

The Production Permit for Non-Metals will grant operations for an area of 5,000 hectares for a
10-year-period with provisions for a maximum of two five-year extensions. The Production Permit for Specific Non-Metals will grant operations for 20 years with a maximum of two tenyear extensions.

The Production Permits for Rocks can be granted for an area of 1,000 hectares for a period of

five years, with provisions for a maximum of two five-year extensions. The Production Permits
for Coal can be granted for an area of 15,000 hectares for a period of 20 years, provisions for a

maximum of two ten-year extensions.

A company exploring for metals, minerals and coal will also have the guaranteed right to proceed to the development and production stages under another permit for a period of 20 years, with provisions for a maximum of two ten-year extensions. Existing mining and coal contracts will be effective until the contract expires but some

provisions should be adjusted to fit in with the new law within a year after the law is passed.
Mining firms have the obligation to carry out Corporate Social Responsibility (CSR) programs.