2020 Amendment of the Mineral and Coal Mining Law

The Government recently issued Law No.3 of 2020 that amends Law No.4 of 2009 on Mineral and Coal Mining. There are positive and negative implications of this amendment.

One of the main reasons behind this amendment to the 2009 Mining Law is to make the law consistent with several Constitutional Court’s decisions that require mineral and coal mining activities to be conducted by maintaining the state control over ‘natural resources’ consistent with article 33(3) of the 1945 Constitution. The Court considered the meaning of ‘state control’ in article 33(3) to be more than just regulating and supervising the mining sector but also through ‘actual control’ over this sector than can be conducted through State-Owned Enterprises (BUMN). That is why in the 2020 amendment, there are some provisions that give priority to BUMN and BUMD in obtaining mining licences.

Mining Licencing Structure under the 2020 Amendment

The 2020 amendment itself is made with the similar structure with the 2009 Law. Since the 2009 Law, the mining sector has been conducted by shifting from the Contract of Work to Licencing arrangement. The 2020 amendment basically requires a mineral or coal mining company to secure:

  1. Mining Licence Area (Wilayah Izin Usaha Pertambangan/WIUP); and
  2. Mining Licence (Izin Usaha Pertambangan/IUP).

The existing Contract of Work (Kontrak Karya-for non-coal mining) and Coal Contract of Work (PKP2B-for coal mining) will be transitioned into Mining Licence in the form of IUPK (Izin Usaha Pertambangan Khusus).

Positive Implications of this Amendment

One positive implication of the 2020 amendment is the assumption of all mining authorities by the Central Government. There had been complaints from the industries that the biggest disruption in the mining sector comes from the role of local governments that were issuing licences without proper process and governance. It had caused disputes like when there were two companies that had been granted mining licences with overlapping areas. Some of these disputes even resorted in investment treaty arbitration that were thankfully won by the Indonesian government.

To avoid this uncoordinated issuance of mining licences by local governments, the 2020 amendment gives the central government through the Minister of Energy and Mineral Resources (the “ESDM Minister”) the full authority to manage, supervise and issue licences in the mineral and coal mining sector. The local governments are given a small role through the provincial government in the designation of the mining areas. Another positive implication from the 2020 amendment is that there is a guarantee from the government that there will be no changes in the designation and allocation of the mining areas and guarantee to obtain the required licences for a business that has obtained the mining area allocation as well as a guarantee for a licence holder to extend their licence if they have met the requirements. These guarantees will give legal certainties to investors in the mining sector.

Localisation Obligations

The amendment provides for the obligation to process and purify minerals as well as development and utilisation of coal domestically. Secondly it also requires a mining business to use domestic contractors and prioritise domestic workers. The amendment prohibits the encumbrance of the mining commodities as collaterals for loan which makes it difficult for a mining business to secure a financing. There is also a prohibition to export unprocessed or un-purified minerals except in limited circumstances and only for 3 years after the effective date of this amendment. The amendment also requires the Central Government to set out the number of production of minerals and coals as well as the reference pricing for these commodities.