The Indonesian government has released Regulation No. 96 of 2021 to establish a new licensing structure for mining company operations. This regulation critically examines the divestment obligation for foreign investment companies holding a Mining Business License. These developments can present lucrative opportunities for mining companies to grow and expand in Indonesia.
This article will describe the important changes in these new laws to help you have a clear understanding of new regulations.
Understanding Key Changes in the Licensing Process for Mining Companies in Indonesia
To commence operations, all mining businesses in Indonesia must acquire a Mining Business License (Izin Usaha Pertambangan, IUP), a Community Mining License (Izin Pertambangan Rakyat, IPR), or a Special Mining Business License (Izin Usaha Pertambangan Khusus, IUPK).
IUP can be awarded by the Ministry of Energy and Mineral Resources (MEMR) to the following parties under Article 9 of the GR 96/2021:
- State-Owned Enterprises (BUMN)
- Regional Owned Enterprises (BUMD)
- Privately owned business entities, which comprise national privately owned business entities and privately owned business entities that involve foreign investments
- Individual businesses (perusahaan perseorangan)
How to Obtain a WIUP or WIUPK Based on the New Provisions
GR 96/2021 simplifies the application for an IUP and IUPK. GR 96/2021, like GR 23/2010, requires the acquisition of a Mining Business License Area (Wilayah Izin Usaha Pertambangan, WIUP) or Special WIUP (WIUP Khusus, WIUPK) before obtaining an IUP or IUPK. The key changes to the process for obtaining a WIUP and WIUPK are as follows:
An auction is used to obtain a WIUP for metal mineral and coal commodities. Between 14 and 60 days before the auction date, the MEMR will announce an auction for a WIUP.
Application for non-metal mineral WIUP
An application to the MEMR requires a WIUP for non-metal mineral commodities. Applicants must meet the following administrative requirements:
- Provide geographic coordinates prepared using a national geographic information system
- Pay non-tax state revenue to reserve the mining area and for map printing
- Obtain approval from the relevant IUP or IUPK holder in cases where the proposed WIUP overlaps with existing IUP or IUPK areas to obtain a WIUP for non-metal minerals.
The auction method for obtaining a WIUPK is generally comparable to obtaining a WIUP. The main distinction is that the WIUPK is reserved for state or regionally controlled firms, and candidates must have at least three years of mining experience.
Risk-Based Business Licensing for Mining Companies in Indonesia
Under GR 96/2021, mining activities were implemented based on the:
(i) Business Identification Number (Nomor Induk Berusaha, “NIB”),
(ii) Standard Certificate, and/or
(iii) License, per the amendments made by the Mining Law Amendment.
However, the new business license classification is in line with Government Regulation No. 5 of 2021 on Risk-Based Business Licensing (“GR 5/2021”), which states that the business license required for certain activities is decided based on the activity’s level of risk. Under GR 5/2021, mineral and coal mining are classified as high-risk activities that need a NIB and additional licenses.
GR 96/2021 sets out the following licenses for mining activities:
- IUPK as a Continuation of Operation Contract/Agreement
- Rock Mining License (Surat Izin Penambangan Batuan, SIPB)
- Assignment License (for the mining of radioactive minerals)
- Transportation and Sales License
- IUP for Sales
- Mining Service Business License
New Obligations for Mining Companies in Indonesia
GR 96/2021 imposes new obligations for IUP and IUPK holders, among others:
- Holders of the IUP and IUPK must now conduct ongoing exploration every year and set aside a percentage of their yearly budget for mineral/coal reserves
- Holders of IUP and IUPK must work with a local and/or national mining service firm
- To carry out their mining activity, IUP and IUPK holders must use mining roads, which they must construct themselves or in collaboration with other IUP or IUPK holders or other parties that have roads that meet mining safety requirements
How Cekindo Can Help?
For foreign investors setting up a mining company in Indonesia for lucrative returns, they must be aware of the document-intensive procedures. Cekindo’s comprehensive ancillary services can help you with a hassle-free company formation process along with the country’s finest legal consultants, and professionals on the team to help you every step of the way. Moreover, Cekindo helps in the seamless acquisition of business licenses and also provides accounting and tax reporting services.
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