What to Know in Mining Regulations

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ining in Indonesia :: Mitrais - A service company with three busine...ftware development, mining solutions and medical information systems

MINING IN INDONESIA

1. What is the nature and importance of the mining industry?

Indonesia is among the top 10 producers in the world for gold, copper, nickel and tin. Its world-class minesnclude Grasberg, Batu Hijau and Soroako. Active mining companies include Antam, Freeport, Koba Tin,Newcrest, Newmont and Timah. The country is a key supplier of minerals and metals to Asia's leadingndustrialised and industrialising nations. Mining is a significant contributor to Indonesia's GDP and the major

contributor to the GDP of a number of its provinces (Papua, Bangka- Belitung, West Nusa Tenggara, Riau,South Sulawesi and North Maluku).

Indonesia is highly prospective geologically. But exploration for minerals and mine development (in particulaknown nickel deposits) has been impeded in recent years by legal uncertainties arising from decentralisation,the prohibition by Law No. 41/1999 of open-cut mining in designated protected' forest areas and illegalmining. In addition, proposed reforms to mining laws and the possible end to the country's long-standingContract of Work regime have eroded investor confidence.

Nevertheless, the Department of Energy and Mineral Resources reported that investments in mining in 2005under Contracts of Work were US$506.09 million, up from US$323.78 million in 2004. The mining industry's

commodity export value increased from US$7,304 million in 2004 to US$9,385 million in 2005 (including coa

Legal and regulatory structureback to top

2. Is the legal system civil or common law -based?

Indonesia has a civil law system, inherited from the Dutch who governed portions of Indonesia from the earl17th century until 1949. Indonesia's Civil Code has not been substantially amended for over a century.back to top

3. How is the mining industry regulated?

The mining industry in Indonesia is regulated by central, provincial, regional and municipal levels ofgovernment. Mining rights or authorisations (known as kuasa pertambangan or KPs) may be granted andregulated at all levels of government pursuant to centrally enacted mining laws and regulations and,ncreasingly, regional regulations. Provincial and regional governments have also begun to exercise theirperceived authority by attaching conditions to grants of mining rights and imposing additional obligations andtaxes on their holders. These, and regional regulations, may conflict with central laws and so be subject toreview and cancellation by the central government (ie, the Ministry of Domestic Affairs).

Indonesia's mining laws also contemplate the granting of mining rights under contracts (kontrak karya orcontracts of work, KK or COW) between government and private sector contractors. COWs are in theory

negotiated' but in practice have followed a series of evolving standard form agreements (from the first,through to the seventh, and perhaps the eighth generation'), all of which have been approved byparliament and the president. But obtaining a new COW is currently a complex and sometimes impossibleexercise.

The existing mining law (as described below) is perceived to be inadequate in many ways. There is a need toresolve jurisdictional confusion and more fully define the environmental and reclamation obligations of minincompanies.

Since 1999, the Forestry Law has prohibited open-cut mining in protected forest' areas (a catch-all categoapplying to much of Indonesia's forested land mass). The central government had enacted decrees and

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regulations exempting contractors under 13 COWs, Coal COWs and holders of KPs approved before theenactment of the Forestry Law in 1999 from that Law's prohibition of open-cut mining in protected forestareas. The Forestry Law requires holders of KPs and contractors under COWs or Coal COWs to neverthelessobtain use and borrow approvals from the Forestry Department under regulations that are aimed at limiting tmpact of mining operations on forested areas. But the implementing regulation issued by the minister offorestry, Regulation No. P-14/2006, sets forth difficult requirements that are almost impossible for such miniright holders to perform. Regulation P-14/2006 appears to permit limited and conditional use of forest areas mining activities in exchange for reforestation commitments in other areas or compensation.

From 1967 until 1999, Indonesia had a centrally regulated mining law regime with an open-door' policy foforeign investment in mining that was viewed as attractive and reliable by international mining companies. Foforeign mining companies, the foundation of reliability was the COW. Considered to be lex specialis, it granteexclusive mining rights to a corporate contractor over a defined, usually extensive, area for a 30-year term. Trights and obligations of government and contractors under COWs are, when so stated, immune fromsubsequent changes in law, royalties and tax rates. Furthermore, unlike KPs, disputes between the governmeand the contactor granted mining rights under a COW (except for those concerning tax matters) can beresolved through international arbitration. Enforcement of arbitral awards may be assisted, as Indonesia is aparty to the New York Convention on the Enforcement of Foreign Arbitral Awards.

In 1999, decentralisation and regional administration laws (Law No. 22/1999 regarding regional government,

replaced by Law No. 32/2004) transferred substantial authority over hardrock mining from the centralgovernment level to provincial, regional and municipal government levels. Further to Government Regulation(GR) No. 75/2001, mining rights in the form of KPs may be issued, administered and regulated at the centraprovincial, regional or municipal level, depending primarily on whether provincial, regional or municipalboundaries intersect the area in question. At the same time, Law No. 25/1999 and 33/2004 confirmedsignificant increases in the share of revenues allocated to provincial, regional and municipal governments frodead rent, tax and royalty payments made by holders of mining rights.

GR No. 75/2001 also provided that COWs "should be stipulated separately" in consultation with the People'sRepresentative Assembly Parliament. Since May 2005, parliament has considered a new Mining Law. This haseffectively blocked consideration and issuance of new COWs for the past seven years even though there are

number of major international mining company applicants.back to top

4. What are the principal laws that regulate the mining industry? What are the principalregulatory bodies that administer those laws?

Principal laws:

Article 33 of the constitution of the Republic of Indonesia of 1945; Law No. 11/1967 on Basic Provisionof Mining, GR No. 32/1969, GR No. 79/1992 and GR No. 75/2001; and minister of energy and mineralresources 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 & MineraResources (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



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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 asdirector 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).

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5. What classification system does the mining industry use for reporting mineral resources andmineral reserves?

The JORC Code and Guidelines for Reporting of Identified Mineral Resources and Ore Reserves, a joint initiat

of the Australasian Institute of Mining & Metallurgy, the Minerals Council of Australia and the AustralianInstitute of Geoscientists through the Joint Ore Reserves Committee, is widely used in Indonesia.

Mining rights and title

6. Who has title to metallic minerals in the ground?

Under article 33 of the constitution of the Republic of Indonesia, 1945, natural resources (ie, land, water andnatural riches contained therein) are to be controlled' by the state and made use of for the people. As aresult, the state (ie, the government of the Republic of Indonesia) is deemed to have title to minerals in theground and to mined and processed minerals and metals. Parties granted mining rights under the Mining Law

are in effect contractors' of the government and do not by virtue of holding mining rights acquire title tominerals in the ground. Parties holding mining rights for exploitation, transport and sale under KPs or COWsare granted the exclusive right to sell and export mined minerals and retain the proceeds of sale (assumingroyalties and other payments to the government are made in a timely manner). Title is acquired by a purchafrom the government in accordance with agreements for sale and purchase between the purchaser and the Kholder or the COW contractor (in effect, acting as the government's agent), or at the point of export.back to top

7. What information/ data is publicly available to private parties who wish to engage in miningactivities?

The central DEMR in Jakarta provides published information about Indonesia's mining law regime but suchnformation is not comprehensive and may not be up to date, especially with respect to regional regulations.

The DEMR will on the request of any party, and for a fee, provide printed maps showing areas covered bygrants of mining rights to identified parties. These maps may not be up to date nor include mining rightsgranted by provincial governors, regents or mayors but not yet reported to the DEMR. Failure to report,however, does not invalidate a KP. Lack of coordination amongst government levels can result in overlappinggrants and resultant uncertainty.

Geological information and data can be purchased from the DEMR for a fee per hectare for areas not subjecta currently valid grant of mining rights. Such information and data has usually been generated by prior holde



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of mining rights for the area in question and provided as legally required to the DEMR.back to top

8. What mining rights may private parties acquire? How are these rights acquired? Whatobligations does the holder of these rights have?

Mining rights are granted pursuant to the issuance of KPs (for smaller areas) and, in theory, COWs (for largeareas) on a first come, first served basis. Such rights give the holder or contractor the exclusive authorisationto conduct mining activities in a defined area within a certain period of time subject to performance of specif

obligations. The holder of a KP or a contractor under a COW has a right to keep and sell minerals mined in itKP or COW area provided that dead rent, certain taxes and royalties are paid. KP holders and COW contracto(to the extent specified in COWs) are subject to generally applicable laws, such as environmental and forestraws.

At present, COWs are unlikely to be approved until the Mining Law is amended and such amendment retainsthe COW as one means of granting mining rights. Nevertheless, the process for obtaining a COW continues tbe initiated by an application for, and issuance of, a preliminary investigation permit (SIPP) or an explorationpermit. Such permits are issued by the central, provincial or regional levels of government depending on theocation of the area covered by the permit. The holder of the permit may be a foreign company. The holder hthe right to request a COW for such area or part thereof. The processing of such requests involves obtaining

approvals of the DGMCG and all levels of government, negotiation of the terms and conditions of the COW atabling of the proposed COW before parliament for its approval'. The COW is signed for the government the MEMR following approval by the president. It is also signed by a new Indonesian company formed by thepermit holder and at least one other party (both of which can be foreign companies).

An alternative but little used way to obtain a COW by foreign investor involves conversion of KPs to a COW.This requires negotiations and approvals concerning all levels of government and additional approvals of theDGMCG, the Capital Investment Coordinating Board (BKPM), parliament and the president (see MEMR DecreeNo. 1614/2004).

Mining rights may also be acquired through direct transfer of KPs by their holders to third parties provided thtransfer is first approved by the granting authority. Mining rights granted to contractors under COWs or of acontractor's interest under a COW may be assigned and transferred to qualified parties if such assignment antransfer is permitted under the terms of the COW in question and approvals have been obtained, both as mabe required under the COW (normally from the MEMR or DGMCG) and under regional administration laws.Assignments of mining rights have been approved as security for project loans for funding mine constructionObtaining approvals can be a prolonged process and as a result, transfers and assignments are relativelynfrequent.

A simpler but indirect method of obtaining or rather controlling mining rights is (subject to restrictions onforeign ownership) by purchasing the shares of a contractor under a COW or of its shareholders.

KPs may be granted by the regent or mayor if the KP area is located entirely within a regency or municipality

KPs may be granted by the provincial governor if the KP area straddles two or more regencies or municipalitwithin a province and there is no coordination between the regents or mayors concerned. KPs may be granteby the MEMR if the KP area straddles two or more provinces and there is no coordination between thegovernors concerned. The authority of regents and mayors extends to four miles offshore, of governors tobetween four and 12 miles offshore and of the MEMR to KP areas more than 12 miles offshore.

KPs grant exclusive mining rights to the holder for specified minerals or metals, stages of mining activity andspecific time periods within a defined KP area. However, a holder of a KP for exploration of a specified minerhas a priority in applying for a KP for other minerals discovered in the same area. The holder of a generalsurvey KP has priority over other applicants for an exploration KP within the same area. The holder of anexploration KP has priority over other applicants for an exploitation KP within the same area. Applications for



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ater stage KPs and extensions must be initiated during the term of an existing KP.

COW contractors that are PMA (foreign capital investment) or PMDN (domestic capital investment) companienormally have special privileges or concessions confirmed in the COW, for example, with respect to duty-freemport of capital equipment, unrestricted export of mineral products and exemption from currency exchangecontrol if ever adopted by the government. COWs may also establish special tax regimes for the COWcontractors and fix corporate tax rates at the then current rate, with the government undertaking to hold tharate for the life of the COW and in some instances to give the COW contractor the benefit of any future lowerate.

Some COWs require COW contractors to work towards and assist' the government in establishing metal-processing facilities in Indonesia, if economically feasible. If such facilities have been established in Indonesiaby other parties, the COW contractor may be required to process its mineral products at such facilities if termand conditions no less favourable than offshore alternatives can be obtained.

Mining-related obligations of a holder of mining rights are set forth in the Mining Law, for KP holders asconditions attached to the KP permit and for COW contractors as terms and conditions in the COW. Otherobligations are imposed in environmental and forestry laws.

To apply for and then maintain a KP or COW in force, the holder or COW contractors must pay prescribeddeposits, dead rent, exploration or other contributions, and land and building tax to specified governmentauthorities.

Work must commence within six months from issuance of exploration KPs, within six months for pre-exploitation work under exploitation KPs and within one year for exploitation work under exploitation KPs. A month hiatus when no work is carried on can result in the KP being deemed abandoned. Failure to comply wsuch deadlines, work obligations and permit conditions can result in KPs or COW companies being terminatedAn issuing authority may suspend performance of obligations due to force majeure or other unexpected even

Holders of mining rights are entitled to conduct exploration, construct required infrastructure and carry onother mining activities using proper mining techniques and equipment. But holders must at the same timeacquire consents, relinquishments or transfers from surface rights holders (see below). Holders are required

deposit reclamation funds.

KP holders must submit preliminary reports detailing mining plans, production targets and quarterly and annreports in a prescribed form.

The obligations of COW contractors are more extensive and spelled out in detail in the COW. Specialobligations of COW contractors include, without limitation, obligations for employment and training ofIndonesian nationals, maximisation of regional economic and social benefits, regional and local businessdevelopment (with regional and local levels of government involved in the programme and budgeting procesproviding public access to and use of infrastructure, such as airstrips, harbours, roads and bridges andpayment of regional and local government levies and taxes as approved by the central government as such

existed on the date of signing of the COW. The decentralisation and delegation of authority to regional hasresulted in attempts by such levels to collect additional levies when authority to do so may be questionable oacking.

COW contractors are obligated to sell mineral products at arms' length international prices, report salesrevenues and justify sales prices.

Government approvals are required as a COW advances from general survey through to exploration, feasibilistudy, mine construction and finally to the 30-year operating period.

Mine and infrastructure plans are also subject to government approval. Since regionalisation, this means inpractice approval by all levels of government in the affected area.



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Under certain COWs, PMA contractors and their foreign shareholders are obligated to offer shares for sale inthe COW contractor to Indonesian nationals and companies owned by Indonesian nationals. These COWsspecify the extent of such offerings and the percentage of shares in the COW contractor company involved. Fsome COWs, such offerings must continue until such Indonesian parties own no less than 51% of all shares the COW company. Offering prices are specified as being fair market' prices but in practice are the pricesagreed between the COW company and the central government.

Since the enactment of GR No. 20/1994 and GR No. 83/2001, the mandatory level of Indonesian ownership

a COW PMA company has been reduced to nil on formation and some level (probably a nominal percentage)after 15 years of production. COWs issued thereafter have referred to GR No. 20/1994 as being at alltimes' (ie, for the life of the COW) the governing requirement for Indonesian ownership of COW contractorcompanies.back to top

9. Is there any distinction between the mining rights that may be acquired by domestic partiesand those that may be acquired by foreign parties?

Under the Mining Law, KPs can only be granted to Indonesian individuals and legal entities. Although theMining Law contemplates that the KP holder has a demonstrable capacity to exploit minerals in its KP area, t

s often not the case. As a result, KP holders on occasion enter into agreements with foreign mining companto carry out mining activities on their behalf. Some KPs contain conditions requiring approval of suchagreements (sometimes referred to as cooperation agreements') by the issuing authority.

A foreign individual or entity cannot be a direct party to a COW but can be a shareholder of an Indonesian PCOW contractor company. As mentioned above, and subject to the terms of the COW in question, foreignerscan hold as much as 100 per cent of the issued shares of such companies for 15 years. Thereafter, a nominapercentage of shares in the PMA COW contractor company must be offered to Indonesians at fair-market oragreed prices.back to top

10. How are mining rights protected?

KP holders and COW contractor companies may attempt to enforce mining and related rights against thirdparties in the Indonesian courts. Litigation is slow and costly, judicial processes are cumbersome and outcomare difficult to predict.

As mentioned above, COW contractors have the additional right of being able to resolve disputes about theirCOW rights and the government's COW obligations by arbitration. COWs contain arbitration provisions ofdisputes and specify applicable arbitration rules. The arbitration location may be offshore if so specified in thCOW or the initiating party. Enforcement of an offshore arbitration award may be facilitated given Indonesiaadherence to the New York Convention on Enforcement of Foreign Arbitral Awards. Enforcement, in any eves likely to be difficult and slow.

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11. How do the rights of aboriginal, indigenous or currently or previously disadvantaged peopleaffect the acquisition or exercise of mining rights?

Indigenous people are not recognised constitutionally or otherwise as having any legal rights to mineraldeposits. Ownership of metals and minerals in the ground is vested in the state, as described above. Howeveocal people and cooperatives are in theory to be given priority in the event of competing applications for KPsIn practice, a first-come, first-served' approach may preclude this priority from being exercised.back to top



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12. What surface rights may private parties acquire? How are these rights acquired?The holders of mining rights have the right to enter and remain in the area covered by such rights in order toexercise their mining right subject to acquisition or relinquishment of surface rights held by other parties.Surface rights may be based on customary law, use or occupation and titles granted pursuant to the AgrarianLaw.

Holders of mining rights must negotiate and pay compensation mutually acceptable for surface rights andcrops, trees and other plants of commercial or subsistence value. Holders must also pay for affected building

and resettlement if necessary. Some COWs provide that such compensation for surface rights is to be reasonable' but expectations can cause negotiations to be difficult and protracted. Regional and local officmay assist in the acquisition of surface rights, but there are no compulsory acquisition laws or administrativetribunals empowered to fix compensation.

The Agrarian Law established nine land titles, of which three are relevant to the acquisition of surface rights holders of mining rights, namely:

right of ownership (hak milik);

right to build (hak guna bangunan - HGB); and

right to use (hak pakai).

Companies holding mining rights may obtain HGB and hak pakai titles (which have a defined term of years)and would normally do so for areas of land on which plants, fixed equipment and infrastructure are to beocated. Hak milik may only be granted to Indonesian individuals and certain entities but a hak milik holder crelinquish his rights and allow conversion of the title to HGB issued in the name of the mining rights holder.Laws and procedures governing the acquisition of land titles are complex and the process can be lengthy.back to top

Duties, royalties and taxes

13. What duties, royalties and taxes are payable by private parties carrying on m ining activities

Are these duties, royalties and taxes revenue-based or profits-based?

A holder of mining rights is required to pay the state dead rent, royalties during exploration and exploitationand other payments related to mining activities and the area covered by the holder's mining rights as mayotherwise be required by law.

GR No. 45/2003 specifies the dead rent and royalty obligations of KP holders. COWs specify such obligationsfor COW contractors and these may differ from those set forth in GR No. 45/2003. DGGMR Circular Letter No008.E/84/DJG/2004 provides instructions for calculating payments of dead rents and royalties. Law No.25/1999 specifies to which level of government KP holders and COW contractors are to pay royalties and howsuch levels of government are to allocate and transfer these funds to other levels of government.

Dead rents are charged based on the number of hectares covered by a KP or COW and the stage of miningnvolved. For KPs, dead rent charges begin at 500 rupiah per hectare per year during the General Survey andPreliminary Investigation KP and increase to as much as 25,000 rupiah per hectare per year during theExploitation KP. For COWs, dead rent charges begin at US$0.05 and increase annually to as much as US$4.0per hectare per year.

Royalties for KP holders and COW contractors not otherwise governed by royalty rates specified in their COWare defined as percentages (3 per cent to 5 per cent) of FOB sales prices per ton or kilogramme of metalexported as such or as contained in exported concentrates.

Companies holding KPs also pay corporate income tax at generally applicable rates (currently 30 per cent) an



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are subject to generally applicable tax laws. COW contractors pay corporate income tax at rates specified intheir COWs that may be more or less or the same as generally applicable rates. COWs have customarilycontained special tax provisions for COW contractors that constitute a special tax regime for the life of theCOW. Tax officials may not at times respect the lex specialis nature of such provisions.back to top

14. What tax advantages/ incentives are available to private parties carrying on mining activitie

Few special tax advantages or incentives are available to holders of KPs. However, KP holders are eligible for

relief (in the form of a reduction to a maximum of 5 per cent) for a two-year period from import duty imposeon machinery, goods and materials. Mining services companies are also eligible for such relief (minister offinance Decree No. 135/KMK.05/2000 and Decree No. 28/KMK.05/2001).

PMDN and PMA companies holding mining rights either as KP holders or COW contractors are eligible for relieor exemption from duties on imported capital equipment. COW contractors may also be eligible for otherpreferential tax treatments if contained in the provisions of their COWs. For example, a COW contractor mayeligible for a reduced rate of withholding tax on dividend payments made to a foreign shareholder if soprovided in its COW.

15. Is there any distinction between the duties, royalties and taxes payable by domestic partiesand those payable by foreign parties?

Please see question 14, having regard to the fact that KP holders must be Indonesian nationals or entitiesowned by Indonesian nationals whereas COW contractors may be Indonesian companies owned by foreignshareholders.back to top

Business structures

16. What are the principal business structures used by private parties carrying on miningactivities?

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

Financing

17. What are the principal sources of financing available to private parties carrying on miningactivities? What role, if any, does the domestic public securities market play in financing themining industry?

There are few Indonesian sources of financing for private parties carrying on mining activities. Explorationfunds tend to be raised through offshore stock offering of listed affiliates of COW contractors or parties withcooperation or similar agreements with KP holders. Such funds are then lent to the mining rights holder.Offshore banks have provided limited recourse project finance loan facilities for mine development andconstruction. Although several mining companies are listed on Indonesia's stock exchanges, the Indonesianpublic securities market does not play a significant role in financing mining activities.

Restrictions and limitations

18. What restrictions and limitations are imposed on the import of machinery and equipment or



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services required in connection w ith mining activities?

There are no material restrictions or limitations of any kind imposed under Indonesian law in connection withthe importation of machinery and equipment normally required for mining activities. Normally required servicfor mining activities may also be obtained and provided in Indonesia. But the importation' of such services closely regulated to the extent that individual or corporate service providers establish a physical presence oare deemed to have a permanent establishment for tax purposes in Indonesia.back to top

19. What restrictions and limitations are imposed on the use of domestic and foreign employeesn connection with mining activities?

There are no restrictions or limitations imposed on the use of domestic employees for mining activities inIndonesia. Companies holding and exercising mining rights may employ foreigners (expatriates) except forpersonnel work (see Presidential Decree No. 75 of 1995). Employers must obtain a number of approvals toemploy expatriates. The expatriates must obtain the requisite visas, residence and work permits in order towork in Indonesia.back to top

20. What restrictions or limitations are imposed on the processing, export or sale of metallic

minerals?

There are presently no mandatory restrictions to or limits on the processing, export or sale of metallic mineramined in Indonesia by KP holders although exploitation KPs may, and certain COWs do, require contractors tprocess minerals within Indonesia if economically feasible. Mining rights holders normally produce concentrafrom minerals mined. Regional and local development obligations of COW contractors impose the need tomaximise employment of Indonesian nationals and otherwise enhance development and this can be a factor determining the extent to which minerals will be processed in Indonesia.back to top

21. What restrictions or limitations are imposed on the import of funds for m ining activities or tuse of the proceeds from the export or sale of metallic minerals?

Indonesia does not have any foreign exchange controls. There are no restrictions or limitations on the imporof funds for mining purposes (except that foreign loans must be reported to Bank Indonesia). COWs and othaws may require that imported funds be deposited into special PMA accounts.

There are no restrictions or limitations on the use of proceeds from the sale or export of metallic minerals.There are no obligations to repatriate or use export or sale proceeds in Indonesia. COW contractors havespecific rights to transfer funds abroad entrenched within their COWs. The standard article 15 of a COWpermits COW contractors to transfer abroad net operating profits, repayments of loan principal and paymentof interest on foreign loans, allowances for depreciation of capital assets generally applicable to PMA companunder the Foreign Investment Law, proceeds from the sale of shares to Indonesians, expenses for employed

expatriates and the training of Indonesians abroad, technical assistance and licence fees.back to top

Environment, health and safety

22. What are the principal environmental, health and safety law s applicable to the miningndustry? What are the principal regulatory bodies that administer those laws?

The principal environmental laws are:

Law No. 23/1997 on Environmental Management



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GR No. 27/1999 on Analyses on Environmental Impact (in Indonesia known as AMDAL)

Minister of the Environment Decree No. 17/2001 on Types of Business/Activities Plans Which Must BeAccompanied with Analyses on Environmental Impact

See also: MEMR Decree No. 103.K/008/M.PE/1994 for the role of the Inspector from the DGMCG in supervisiEnvironment Management Plans (RKLs) and Environment Monitoring Plans (RPLs); GR No. 82/2001 onprohibition on discharging solids (including muds and slurries) into water or water sources; and GR No.18/1999 which may apply to all tailings disposals.

The principal health and safety laws specifically applicable to the mining industry are:

GR No. 19/1973 on Regulation and Supervision of Work Health and Safety in Mining

MEMR Regulation No. 01/PM/Pertamb/1978 on Supervision of Mine Dredging Work

MEMR Decree No. 2555.K/201/MPE/1993 on Implementation of Work Health and Safety and MiningEnvironment Mines Inspection in General Mining

Joint Decree of MEMR and the minister of manpower No. 1245.K/26/DDJP/1993 on SupervisionImplementation of Work Health and Safety and Mining Environment

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23. What is the environmental review and permitting process for a mining project? How long dot normally take to obtain the necessary permits?

Mining companies must prepare AMDAL documents (Reference Outline, Environmental Impact Analysis(ANDAL), RKL and RPL) (see MEMR Decree No. 389.K/0088/M.PE/95).

AMDAL documents are open to the public. Review of AMDAL documents is carried out by either a centralreview team (located in Jakarta) or a regional review team (ie, a team designated in the relevant province).Central review teams report to the minister and regional review teams report to the provincial governor fortheir respective approvals.

A first step is the conduct and completion of baseline studies. This is the collection and analysis of data on alphysical aspects and issues, including climate, flora, fauna, soils, river flows, tides, waves, topography (landand sea), social studies on population, health, education, employment and religion. Community consultation required. For a substantial mine project, this could take at least one year.

This is followed by submission of the Terms of Reference for the ANDAL for approval (a process normallyrequiring no less than three months), preparation and submission of the ANDAL, RKL and RPL (six to ninemonths), and approval of the ANDAL (three months). The entire process can take between 18 and 30 monthback to top

24. `What is the closure and remediation process for a mining project? W hat performance bond

guarantees and other financial assurances are required?

Reclamation obligations are defined by MEMR Decree No. 1211.K/008/M.PE/1995; minister of forestry andplantation Decree No. 146/Kpts-II/1999 and Regulation No. P-12/Menhut- II/2004; and DGGMR Decision No.336.K/271/DDJP/1996.

Holders of mining rights are required to submit annual plans for environmental management that include areclamation plan before commencing exploitation. Reclamation must be conducted in accordance withreclamation plans and applicable laws. Completion of reclamation must be confirmed by a DEMR decision.

Before commencing exploitation, a KP holder and a COW company must deposit a reclamation fund in a ban



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appointed by the relevant government authority (ie, central or regional). The amount of the reclamation fundbased on estimated reclamation costs under the relevant AMDAL.back to top

International treaties

25. What international treaties apply to the mining industry or an investment in the miningndustry?

Indonesia is not a party to any international conventions or treaties specifically applicable to the miningndustry. Indonesia is a party to a number of bilateral treaties on foreign investment.

Updates and trends

Indonesia is experiencing increased interest in mining given high commodity prices. However,the existing legal regime imposes difficulties and delays in obtaining mining rights. A bill toamend the Mining Law as brought before parliament would, if enacted in its present form, resultin greater uncertainties.

What to Know in Mining Regulations

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