Foreign Mining Divestment Requirements

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Within a certain number of years after PT PMAs reach the stage of Operation Production, foreign shareholders must divest to reach a minimum of 51% domestic share ownership.

Governing Law
As of the time of publication of this article, foreign divestment in PT PMAs engaged in Mining Business is predominantly governed by the following regulations:

  1. Indonesian Civil Code (Kitab Undang-undang Hukum Perdata – Burgerlijk Wetboek voor Indonesië – Staatsblad 1847:23) (“ICC“);
  2. Law No. 25 of 2007 concerning Capital Investment (Undang-undang No. 25 Tahun 2007 tentang Penanaman Modal) (“UU 25/2007“);
  3. Law No. 40 of 2007 concerning Limited Liability Companies (Undang-undang No. 40 Tahun 2007 tentang Perseroan Terbatas (“UU 40/2007“);
  4. Law No. 4 of 2009 concerning Mineral and Coal Mining (Undang-undang (UU) Nomor 4 Tahun 2009 tentang Pertambangan Mineral dan Batubara) (“UU 4/2009“);
  5. Law No. 3 of 2020 concerning Amendment of Law No. 4 of 2009 concerning Mineral and Coal Mining (Undang-undang No. 3 Tahun 2020 tentang Perubahan atas Undang-Undang Nomor 4 Tahun 2009 tentang Pertambangan Mineral dan Batubara) (“UU 3/2020 amending UU 4/2009“);
  6. Law No. 11 of 2020 concerning Work Creation (UU No. 11 Tahun 2020 tentang Cipta Kerja) (“UU 11/2020“);
  7. Government Regulation No. 96 of 2021 concerning Implementation of Mineral and Coal Mining Business Activities (Peraturan Pemerintah No. 96 Tahun 2021 tentang Pelaksanaan Kegiatan Usaha Pertambangan) (“PP 96/2021“);
  8. Regulation of the President No. 10 of 2021 concerning Capital Investment Business Sectors (Peraturan Presiden No. 10 Tahun 2021 tentang Bidang Usaha Penanaman Modal) (“PerPres 10/2021“);
  9. Regulation of the President No. 49 of 2021 concerning Amendment to Regulation of the President No. 10 of 2021 concerning Capital Investment Business Sectors (Peraturan Presiden No. 49 Tahun 2021 tentang Perubahan atas Peraturan Presiden No. 10 Tahun 2021 tentang Bidang Usaha Penanaman Modal) (“PerPres 49/2021“);
  10. Regulation of the Minister of Energy and Mineral Resources No. 09 of 2017 concerning the Procedures for Share Divestment and the Mechanisms for the Stipulation of the Price for Divestment Shares for Mineral and Coal Mining Business Activities (Peraturan Menteri Energi dan Sumber Daya Mineral No. 09 Tahun 2017 tentang Tata Cara Divestasi Saham Dan Mekanisme Penetapan Harga Saham Divestasi Pada Kegiatan Usaha Pertambangan Mineral Dan Batubara (“PerMen ESDM 09/2017“);
  11. Regulation of the Minister of Energy and Mineral Resources No. 43 of 2018 concerning Amendment of Regulation of the Minister of Energy and Mineral Resources No. 09 of 2017 concerning the Procedures for Share Divestment and the Mechanisms for the Stipulation of the Price for Divestment Shares for Mineral and Coal Mining Business Activities (Peraturan Menteri Energi dan Sumber Daya Mineral No. 43 Tahun 2018 tentang Perubahan Atas Peraturan Menteri Energi Dan Sumber Daya Mineral Nomor 9 Tahun 2017 Tentang Tata Cara Divestasi Saham Dan Mekanisme Penetapan Harga Saham Divestasi Pada Kegiatan Usaha Pertambangan Mineral Dan Batubara (PerMen ESDM 43/2018 amending PerMen ESDM 9/2017) (“PerMen ESDM 43/2018 amending PerMen ESDM 09/2017“);
  12. Regulation of the Minister of Energy and Mineral Resources No. 7 of 2020 concerning Procedures for Granting Territories, Permits, and Reporting for Mineral and Coal Mining Business Activities (Peraturan Menteri Energi dan Sumber Daya Mineral No. 7 Tahun 2020 tentang Tata Cara Pemberian Wilayah, Perizinan, dan Pelaporan pada Kegiatan Usaha Pertambangan Mineral Dan Batubara) (“PerMen ESDM 7/2020“);
  13. Regulation of the Capital Investment Coordinating Board No. 4 of 2021 concerning the Framework and Procedures for Risk-based Business Permitting and Capital Investment Facilities Services (Peraturan Badan Koordinasi Penanaman Modal No. 4 Tahun 2021 tentang Pedoman dan Tata Cara Pelayanan Perizinan Berusaha Berbasis Risiko dan Fasilitas Penanaman Modal) (“PerBKPM 4/2021“); and
  14. Decision of the Minister of Energy and Mineral Resources No. 84 K/32/MEM/2020 concerning the Framework for the Implementation of Offers, Evaluations as well as the Calculation of the Price for Divestment Shares in the Mineral and Coal Mining Sector (Keputusan Menteri Energi dan Sumber Daya Mineral No. 84 K/32/MEM/2020 tentang Pedoman Pelaksanaan Penawaran, Evaluasi, serta Perhitungan Harga Saham Divestasi di Bidang Pertambangan Mineral dan Batubara) (“KepMen ESDM 84/2020“).

Various Regional Government Regulations (Peraturan Daerah) also apply to foreign divestment. However, these Regional Government Regulations are beyond the scope of this article.

Definitions
BUMD” or “Region-owned Enterprise” means a Region-owned Enterprise that operates in the Mining sector in accordance with the provisions of regulations of law. (Article 1(31) of PP 96/2021; Article 1(12) of PerMen ESDM 09/2017).

BUMN” or “State-owned Enterprise” (Badan Usaha Milik Negara) means a State-owned Enterprise that operates in the Mining sector in accordance with the provisions of regulations of law. (Article 1 Point 1 of UU 3/2020 amending Article 1(23a) of UU 4/2009; Article 1(29) of PP 96/2021; Article 1 of PerMen ESDM 09/2017).

Central Government” (Pemerintah Pusat) means the President of the Republic of Indonesia who is vested with authority over governmental affairs of the State of the Republic of Indonesia who is assisted by the Vice President and the Ministers as intended by the Constitution of 1945 of the State of the Republic of Indonesia. (Article 1 Point 1 of UU 3/2020 amending Article 1(36) of UU 4/2009; Article 1(40) of PP 96/2021; Article 1(8) of PerMen 09/2017).

Construction” means Mining Business activities for the conduct of construction of all Operation Production facilities, including environmental impact control. (Art. I Point 1 of UU 3/2020 amending Article 1(18) of UU 4/2009; Article 1(21) of PP 96/2021).

Development and/or Utilization” (Pengembangan dan/atau Pemanfaatan) means efforts to increase the quality of coal with or without changing the original physical nature or chemical structure of the coal. (Article 1 Point 1 of UU 3/2020 amending Article 1(20b) of UU 4/2009; Article 1(25) of PP 96/2021).

Divestment Shares” (Divestasi Saham) means the total number of shares owned by foreign parties that must be offered for sale to Indonesian Participants. (Article 1(1) of PerMen ESDM 9/2017).

Feasability Study” (Studi Kelayakan) means the stage of Mining Business activities to obtain detailed information on all aspects related to the determination of the economic and technical feasibility of Mining Business, including analysis concerning environmental impact and post-mining planning. (Article I Point 1 of Law 3/2020 amending Article 1(16) of Law 4/2009).

Independent Appraiser” (Penilai Independent) means an appraisal company that is not related to a bank and debtor [ambiguous grammatical construction in the regulation] who conducts appraisal activities based on the Indonesian Appraisers Code of Ethics as well as other provisions stipulated by the Indonesian Board of Appraisers and holds a business license from the authorized instrumentality. (Article 1(14) of PerMen ESDM 9/2017).

Indonesian Participants” (Peserta Indonesia) means the Central Government, Regional Provincial Governments, Regional District/City Governments, State-owned Enterprises, Region-owned Enterprises and/or Private National Business Entities. (Article 1 Point 1 of PerMen ESDM 43/2018 amending Articles 2(5) of PerMen ESDM 9/2017).

Investment Value” (Nilai Investasi) is a legal term that is different from the concept of the value of the equity capital in shares. “Investment Value” means the minimum amount of operating and capital expenses determined by the Central Government that must be achieved by a PT PMA including land acquisition and development, building and infrastructure development, machinery and equipment and other investments such as vehicles, office equipment, feasibility studies, rent of land and buildings, survey costs, license costs and operational expenses. (Article 29(10) of PerBKPM 4/2021).

IUP” or “Mining Business License” (Izin Usaha Pertambangan) is a license to conduct Mining Business. (Article 1 Point 1 of Law 3/2020 amending Article 1(7) of Law 4/2009; Article 1(10) of PP 96/2021).

IUP Exploration” or “Mining Business License for Exploration” (IUP Eksplorasi) is a business license granted to engage in activities of general investigation, exploration and feasibility studies. (Article 1 Point 27 of Law 3/2020 amending Article 36(1)(a) of Law 4/2009 on Mineral and Coal Mining; Article 28(1)(a) and (2) of PP 96/2021).

IUP OP” or “Mining Business License for Operation Production” (IUP Operasi Produksi) is a business license granted after the completion of the implementation of IUP Exploration to engage in activities of construction, Mining Activities, processing and/or refining or development and/or utilization, as well as transportation and sales. (Article 1 Point 27 of Law 3/2020 amending Article 36(1)(b) of Law 4/2009; Article 28(1)(a) and (2) of PP 96/2021; Article 1(3) of PerMen ESDM 9/2017).

IUPK” or “Special Mining Business License” (Izin Usaha Pertambangan Khusus) is a license to conduct Mining Business in a Special Mining Business License Territory. (Article 1 Point 1 of Law 3/2020 amending Article 1(11) of Law 4/2009; Article 1(12) of PP 96/2021).

IUPK Exploration” or “Special Mining Business License for Exploration” (IUPK Eksplorasi) is a business license granted for the implementation of activities of general investigation, exploration and feasibility studies. (Article 76(1)(a) of Law 4/2009 on Mineral and Coal Mining; Article 28(1)(b) and (2) of PP 96/2021).

IUPK OP” or “Special Mining Business License for Operation Production” (IUPK Operasi Produksi) is a business license granted after the completion of the implementation of IUPK Exploration to engage in activities of construction, Mining, processing, refining, development, utilization, transportation and sales. (Article 76(1)(b) of Law 4/2009; Article 28(1)(b) and (3) of PP 96/2021; Article 1(4) of PerMen ESDM 9/2017).

IUP Processing and/or Refining” or “Special Mining Business License for Operation Production Especially for Processing and/or Refining””IUP Processing and/or Refining” (sometimes referred to in the law as Izin Usaha Pertambangan Khusus Operasi Produksi Khusus untuk Pengolahan dan/atau Pemurnian or IUP Operasi Produksi Khusus untuk Pengolahan dan/atau Pemurnian) means a license that is granted to purchase, transport, process and refine including selling mineral and coal mine commodities that are processed products. (Article 1(18) of PerMen 07/2020).

IUP Transport and Sales” or “Special Mining Business License for Operation Production Especially for Transport and Sales” (sometimes referred to in the law as Izin Pengangkutan dan Penjualan or IUP Operasi Produksi khusus untuk Pengangkutan dan Penjualan or Izin Usaha Pertambangan Khusus Operasi Produksi Khusus untuk Pengangkutan dan Penjualan or IUP Operasi Produksi Khusus untuk Pengangkutan dan Penjualan) means a license that is granted to companies to purchase, transport and sell mineral and coal Mining commodities. (Article I Point 1 of Law 3/2020 amending Article 1(13c) of Law 4/2009; Article 1(15) of PP 96/2021; Article 1(19) of PerMen ESDM 07/2020).

Limited Liability Company” or “PT” (Perseroan Terbatas) means an Indonesian limited liability company which is an Indonesian legal entity established pursuant to Indonesian law and domiciled in Indonesia comprised of a conglomeration/confederation of capital divided into shares and formed based on an agreement (requiring at least two founding shareholders) to conduct business activities with the intention of sharing the profits between them. (Articles 1(1) and 7(1) of UU 40/2007; Article 1618 of the ICC).

Mining” (Pertambangan) means a part or all of the stages of activities in the framework, management and business of minerals or coal that include general investigations, exploration, feasibility studies, construction, mining, processing and/or refining, or development and/or utilization, transportation and sales, as well as post-mining activities. (Article 1 Point 1 of Law 3/2020 amending Article 1(1) of Law 4/2009; Article 1(1) of PP 96/2021).

Mining Activities” (Penambangan) means a part of the business activities of Mining for the production of minerals and/or coal and their associated minerals. (Article 1(2) of PerMen ESDM 09/2017).

Mining Business” (Usaha Pertambangan) means activities in the framework of the mineral or coal business that includes the stages of activities of general investigations, exploration, feasibility studies, construction, mining activities, processing and/or refining or development and/or utilization, transportation and sales, as well as post-mining activities. (Article 1 Point 1 of Law 3/2020 amending Article 1(6) of Law 4/2009; Article 1(6) of PP 96/2021).

Mining Business License” or “IUP” (Izin Usaha Pertambangan) is a license to conduct Mining Business. (Article 1 Point 1 of Law 3/2020 amending Article 1(7) of Law 4/2009; Article 1(10) of PP 96/2021).

Mining Business License for Exploration” or “IUP Exploration” (IUP Eksplorasi) is a business license granted to engage in activities of general investigation, exploration and feasibility studies. (Article 1 Point 27 of Law 3/2020 amending Article 36(1)(a) of Law 4/2009 on Mineral and Coal Mining; Article 28(1)(a) and (2) of PP 96/2021).

Mining Business License for Operation Production” or “IUP OP” (IUP Operasi Produksi) is a business license granted after the completion of the implementation of IUP Exploration to engage in activities of construction, Mining Activities, processing and/or refining or development and/or utilization, as well as transportation and sales. (Article 1 Point 27 of Law 3/2020 amending Article 36(1)(b) of Law 4/2009; Article 28(1)(b) and (3) of PP 96/2021; Article 1(3) of PerMen ESDM 9/2017).

Operation Production” (Operasi Produksi) means the state of Mining Business activities that includes construction, Mining Activities, Processing and/or Refining or Development and/or Utilization, including transport and sales, as well as means/mechanisms for the control of environmental impact in accordance with the results of Feasibility Studies. (Article I Point 1 of Law 3/2020 amending Article 1(17) of Law 4/2009).

Private National Business Entities” (Badan Usaha Swasta Nasional) means a business entity that takes the form of a private Indonesian legal entity taking the form of a Limited Liability Company whose capital or shares are 100% domestically owned. (Article 1(30) of PP 96 of 2021; Article 1(13) of PerMen ESDM 9/2017; Article 1 Point 1 of PerMen ESDM 43/2018 amending Articles 2(6) of PerMen ESDM 9/2017).

Processing” (Pengolahan) means efforts to increase the quality of a mined Mineral commodity to produce a product with a physical or chemical nature that is not changed from the original nature of the mined commodity to conduct refining or to become an industrial raw material. (Article I Point 1 of Law 3/2020 amending Article 1(20) of Law 4/2009).

Limited Liability Company” or “PT” (Perseroan Terbatas) means an Indonesian limited liability company which is an Indonesian legal entity established pursuant to Indonesian law and domiciled in Indonesia comprised of a conglomeration/confederation of capital divided into shares and formed based on an agreement (requiring at least two founding shareholders) to conduct business activities with the intention of sharing the profits between them. (Articles 1(1) and 7(1) of UU 40/2007; Article 1618 of the ICC; (Article 5(2) of UU 25/2007)).

PT” or “Limited Liability Company” (Perseroan Terbatas) means an Indonesian limited liability company which is an Indonesian legal entity established pursuant to Indonesian law and domiciled in Indonesia comprised of a conglomeration/confederation of capital divided into shares and formed based on an agreement (requiring at least two founding shareholders) to conduct business activities with the intention of sharing the profits between them. (Articles 1(1) and 7(1) of UU 40/2007; Article 1618 of the ICC; (Article 5(2) of UU 25/2007)).

PT PMA” (Perseroan Terbatas Penanaman Modal Asing) means an Indonesian Limited Liability Company whose shares are entirely or partly owned by foreign persons or entities. (Article 1 of UU 40/2007; Article 1(6) of PerMen ESDM 9/2017).

Refining” (Pemurnian) means efforts to increase the quality of a mined Mineral commodity through physical and chemical processes as well as process that further increase purity to produce a product with a physical or chemical nature that is different from the original mined commodity to [produce] a metal product as an industrial raw material. (Article I Point 1 of Law 3/2020 amending Article 1(20a) of Law 4/2009).

Regional District/City Government” (Pemerintah Daerah Kabupaten/Kota) means a regent/mayor as the implementer/organizer of a region/city governmental administration who leads the implementation of governmental affairs with authority over district/city regions. (Article 1(10) of PerMen ESDM 9/2017).

Regional Government” (Pemerintah Daerah) means the head of a region as the implementor/organizer of regional governmental affairs who leads the implementation of governmental affairs with authority over an autonomous region. (Article 1 Point 1 of UU 3/2020 amending Article 1(37) of UU 4/2009; Article 1(41) of PP 96/2021).

Regional Provincial Government” (Pemerintah Daerah Provinsi) means a governor as the implementer/organizer of a provincial regional governmental administration who leads the implementation of governmental affairs with authority over provincial regions. (Article 1(9) of PerMen ESDM 9/2017).

Region-owned Enterprise” or “BUMD” means a Region-owned Enterprise that operates in the Mining sector in accordance with the provisions of regulations of law. (Article 1(31) of PP 96/2021; Article 1(12) of PerMen ESDM 09/2017).

Special Mining Business License” or “IUPK” (Izin Usaha Pertambangan Khusus) is a license to conduct Mining Business in a Special Mining Business License Territory. (Article 1 Point 1 of Law 3/2020 amending Article 1(11) of Law 4/2009; Article 1(12) of PP 96/2021).

Special Mining Business License for Exploration” or “IUPK Exploration” (IUPK Eksplorasi) is a business license granted for the implementation of activities of general investigation, exploration and feasibility studies. (Article 76(1)(a) of Law 4/2009 on Mineral and Coal Mining; Article 28(1)(b) and (2) of PP 96/2021).

Special Mining Business License for Operation Production” or “IUPK OP” (IUPK Operasi Produksi) is a business license granted after the completion of the implementation of IUPK Exploration to engage in activities of construction, Mining, processing, refining, development, utilization, transportation and sales. (Article 76(1)(b) of Law 4/2009; Article 28(1)(b) and (3) of PP 96/2021; Article 1(4) of PerMen ESDM 9/2017).

State-owned Enterprise” or “BUMN” (Badan Usaha Milik Negara) means a State-owned Enterprise that operates in the Mining sector in accordance with the provisions of regulations of law. (Article 1 Point 1 of UU 3/2020 amending Article 1(23a) of UU 4/2009; Article 1(29) of PP 96/2021; Article 1 of PerMen ESDM 09/2017).

Generally
The only lawful structure allowing foreign individuals and entities to own interests in Indonesian Mining Businesses is through ownership in a PT PMA. (Article 5(2) of UU 25/2007).

Current regulations permit foreign investors to hold 100% of the shares in PT PMAs engaged in Mining Business activities. (See Article 1 Point 1 of PerPres 49/2021 amending Article 2 of PerPres 10/2021).

However, once PT PMAs that hold IUP or IUPK reach the stage of Operation Production (IUP OP or IUPK OP) and have enjoyed the economic benefits of their Mining Businesses for a certain number of years (time-lines are discussed infra), Indonesian law requires PT PMAs to modify their shareholding structures to reach a minimum of 51% domestic share ownership, thus requiring divestment of any shares owned by foreigners above this limit to Indonesian Participants. (Article 1 Point 83 of UU 3/2020 amending Article 112(1) of UU 4/2009).

Government Authority
The Central Government is vested with authority to manage mineral and coal mining activities. (See generally Chapter IV – Coal and Mineral Mining Management Authority of UU 4/2009 as amended by UU 3/2020).

The Central Government has the authority to stipulate restrictions concerning “Investment Value” or total foreign percentage ownership of the shares in PT PMAs active in the Mining sector. (Article 1 Point 4 of UU 3/2020 amending Article 6(3) of UU 4/2009).

Divestment Requirements
PT PMAs that hold IUP OP or IUPK OP are required to divest foreign share ownership to achieve at least 51% share ownership by Indonesian Participants. (Article 1 Point 82 of UU 3/2020 amending Article 112(1) of UU 4/2009; Article 147(1) of PP 96 of 2021; Article 1 Point 1 of PerMen ESDM 43/2018 amending Articles 2(2), (3), (5), (6) and (8) of PerMen ESDM 9/2017).

PT PMAs holding IUP OP specifically for Processing and/or Refining are exempt from share divestment requirements. (Article 1 Point 1 of PerMen ESDM 43/2018 amending Articles 2(3) of PerMen ESDM 9/2017).

Divestment Stages
The divestment rules distinguish between four different categories of mining operations, namely:

  1. Mining activities involving open-pit mines that are not integrated with Processing and/or Refining facilities or Development and/or Utilization facilities (“Open Pit Mines Not Integrated with Processing Facilities“) (Article 147(2)(a) of PP 96/2021);
  2. Mining activities involving open-pit mines that are integrated with Processing and/or Refining facilities or Development and/or Utilization facilities (“Open Pit Mines Integrated with Processing Facilities“) (Article 147(2)(b) of PP 96/2021);
  3. Mining activities involving underground mines that are not integrated with Processing and/or Refining facilities or Development and/or Utilization facilities (“Underground Mines Not Integrated with Processing Facilities“) (Article 147(2)(c) of PP 96/2021); and
  4. Mining activities involving underground mines that are integrated with Processing and/or Refining facilities or Development and/or Utilization facilities (“Underground Mines Integrated with Processing Facilities“) (Article 147(2)(d) of PP 96/2021).

The divestment regulations provide different time periods for the achievement of target divestment percentages for each of the aforementioned categories of Mining operations as set forth below. The clock begins to run for each time period upon the commencement of the “production” stage of Mining Activities after an IUP OP or IUPK OP is issued. (Article 1 Point 1 of PerMen ESDM 43/2018 amending Article 2(2) of PerMen ESDM 9/2017).

The term “production” is not well defined. The stages of Operation Production activities are defined to include Construction, Mining Activities, Processing and/or Refining or Development and/or Utilization and Sales and Transport and Sales. (Art. 28(3) of PP 96/2021).

A reasonable view and the interpretation that is well founded on reasonable statutory interpretation is that the clock would only start to tick upon the occurrence of the first Construction, Mining Activities, Processing, Refining, Development and/or Utilization, Transport and/or Sales activities undertaken after the issuance of an IUP OP or an IUPK OP. Thus, in the event a mine is in a dormant state at the time an IUP OP or an IUPK OP is issued, a situation that does often occur in the field, the clock should not be deemed to have started to tick solely because of the issuance of the IUP OP or the IUPK OP without actual “production” activity. A more draconian view would be that the clock starts to tick on the date an IUP OP or an IUPK OP is issued by the relevant government authority; even where none of the aforementioned activities have commenced.

Open-pit Mines not Integrated with Processing Facilities:

  • Within the 10th Year of the start of production Mining Activities, Indonesian Participants must own at least 5% of all shares of the PT PMA. (Article 147(2)(a)(1) of PP 96/2021).
  • Within the 11th Year of the start of production Mining Activities, Indonesian Participants must own at least 10% of all shares of the PT PMA. (Article 147(2)(a)(2) of PP 96/2021).
  • Within the 12th Year of the start of production Mining Activities, Indonesian Participants must own at least 15% of all shares of the PT PMA. (Article 147(2)(a)(3) of PP 96/2021).
  • Within the 13th Year of the start of production Mining Activities, Indonesian Participants must own at least 20% of all shares of the PT PMA. (Article 147(2)(a)(4) of PP 96/2021).
  • Within the 14th Year of the start of production Mining Activities, Indonesian Participants must own at least 30% of all shares of the PT PMA. (Article 147(2)(a)(5) of PP 96/2021).
  • Within the 15th Year of the start of production Mining Activities, Indonesian Participants must own at least 51% of all shares of the PT PMA. (Article 147(2)(a)(6) of PP 96/2021).

Open-pit Mines Integrated with Processing Facilities:

  • Within the 15th Year of the start of production Mining Activities, Indonesian Participants must own at least 5% of all shares of the PT PMA. (Article 147(2)(b)(1) of PP 96/2021).
  • Within the 16th Year of the start of production Mining Activities, Indonesian Participants must own at least 10% of all shares of the PT PMA. (Article 147(2)(b)(2) of PP 96/2021).
  • Within the 17th Year of the start of production Mining Activities, Indonesian Participants must own at least 15% of all shares of the PT PMA. (Article 147(2)(b)(3) of PP 96/2021).
  • Within the 18th Year of the start of production Mining Activities, Indonesian Participants must own at least 20% of all shares of the PT PMA. (Article 147(2)(b)(4) of PP 96/2021).
  • Within the 19th Year of the start of production Mining Activities, Indonesian Participants must own at least 30% of all shares of the PT PMA. (Article 147(2)(b)(5) of PP 96/2021).
  • Within the 20th Year of the start of production Mining Activities, Indonesian Participants must own at least 51% of all shares of the PT PMA. (Article 147(2)(b)(6) of PP 96/2021).

Underground Mines not Integrated with Processing Facilities:

  • Within the 15th Year of the start of production Mining Activities, Indonesian Participants must own at least 5% of all shares of the PT PMA. (Article 147(2)(c)(1) of PP 96/2021).
  • Within the 16th Year of the start of production Mining Activities, Indonesian Participants must own at least 10% of all shares of the PT PMA. (Article 147(2)(c)(2) of PP 96/2021).
  • Within the 17th Year of the start of production Mining Activities, Indonesian Participants must own at least 15% of all shares of the PT PMA. (Article 147(2)(c)(3) of PP 96/2021).
  • Within the 18th Year of the start of production Mining Activities, Indonesian Participants must own at least 20% of all shares of the PT PMA. (Article 147(2)(c)(4) of PP 96/2021).
  • Within the 19th Year of the start of production Mining Activities, Indonesian Participants must own at least 30% of all shares of the PT PMA. (Article 147(2)(c)(5) of PP 96/2021).
  • Within the 20th Year of the start of production Mining Activities, Indonesian Participants must own at least 51% of all shares of the PT PMA. (Article 147(2)(c)(6) of PP 96/2021).

Underground Mines Integrated with Processing Facilities:

  • Within the 20th Year of the start of production Mining Activities, Indonesian Participants must own at least 5% of all shares of the PT PMA. (Article 147(2)(d)(1) of PP 96/2021).
  • Within the 21st Year of the start of production Mining Activities, Indonesian Participants must own at least 10% of all shares of the PT PMA. (Article 147(2)(d)(2) of PP 96/2021).
  • Within the 22nd Year of the start of production Mining Activities, Indonesian Participants must own at least 15% of all shares of the PT PMA. (Article 147(2)(d)(3) of PP 96/2021).
  • Within the 23rd Year of the start of production Mining Activities, Indonesian Participants must own at least 20% of all shares of the PT PMA. (Article 147(2)(d)(4) of PP 96/2021).
  • Within the 24th Year of the start of production Mining Activities, Indonesian Participants must own at least 30% of all shares of the PT PMA. (Article 147(2)(d)(5) of PP 96/2021).
  • Within the 25th Year of the start of production Mining Activities, Indonesian Participants must own at least 51% of all shares of the PT PMA. (Article 147(2)(d)(6) of PP 96/2021).

Procedures
Offers to Government – Sequence of Rights of Refusal
PT PMAs holding IUP OP or IUPK OP are required to make direct offers of Divestment Shares to the Central Government, Regional Governments, State-owned Enterprises and Region-owned Enterprises. (Article 147(3) of PP 96/2021).

The regulations suggest that Regional Governments refer to the Provincial Regional Governments and the District/City Regional Governments with jurisdiction over the location of the relevant Mining Business Territory. (Article 6(3) of PerMen ESDM 9/2017).

The regulations suggest that Region-owned Enterprises refer to Region-owned Enterprises established by Provincial Regional Governments or the District/City Regional Governments with jurisdiction over the location of the relevant Mining Business Territory. (Article 1 Point 3 of PerMen ESDM 43/2018 amending Article 8(3) of PerMen ESDM 9/2017).

The Central Government, Regional Governments, State-owned Enterprises and Region-owned Enterprises must declare their interest within 90 calendar days after the date of the PT PMA’s offer. (Article 147(4) of PP 96/2021).
During this 90-day period, the Minister of Energy and Mineral Resources will evaluate and negotiate the divestment share price. (Article 1 Point 2 of PerMen ESDM 43/2018 amending Article 5(1) of PerMen ESDM 9/2017).

The Minister can appoint an Independent Appraiser to assist in this evaluation. (Article 1 Point 2 of PerMen ESDM 43/2018 amending Article 5(2) of PerMen ESDM 9/2017).

The Central Government, through the Minister of Energy and Mineral Resources, may, in joint coordination with provincial Regional Governments, District/City Regional Governments, State-owned Enterprises and/or Region-owned Enterprises, declare their interest or lack of interest in the Divestment Shares and determine a divestment scheme including the size and composition among them of participation in the Divestment Shares they will purchase. (Article 147(5) of PP 96/2021).

In the event the Central Government does not intend to purchase the Divestment Shares or does not provide a reply to a Divestment Share offer, the relevant Provincial Regional Governments and District/City Regional Governments are granted the right to purchase the Divestment Shares. (Article 147(6) of PP 96/2021).

In the event the Provincial Regional Governments or the District/City Regional Governments do not intend to purchase the Divestment Shares or do not provide a reply to a Divestment Share offer, State-owned Enterprises are granted the right to purchase the Divestment Shares. (Article 147(7) of PP 96/2021).

In the event State-owned Enterprises do not intend to purchase the Divestment Shares or do not provide a reply to a Divestment Share offer, the relevant Region-owned Enterprises are granted the right to purchase the Divestment Shares. (Article 147(8) of PP 96/2021).

In the event the Region-owned Enterprises do not intend to purchase the Divestment Shares or do not provide a reply to a Divestment Share offer, Private National Business Entities are granted the right to purchase the Divestment Shares through a public auction process. (Article 147(9) of PP 96/2021; Article 9(2) of PerMen ESDM 9/2017).

In the event Private National Business Entities do not intend to purchase the Divestment Shares or do not provide a reply to a Divestment Share offer, the Divestment Share offer shall be conducted through the Indonesian stock exchange. (Article 147(10) of PP 96/2021; Article 10(1) of PerMen ESDM 9/2017).

Further details of the procedures for the implementation of divestment of Divestment Shares including time lines and technical and administrative requirements is set forth in the Attachment to KepMen ESDM 84/2020.

Due Diligence
During the implementation of divestment, the PT PMA holding an IUP OP or an IUPK OP is required to provide access to information to prospective Indonesian Participants to conduct due diligence relating to the Divestment Shares. (Article 1 Point 5 of PerMen ESDM 43/2018 adding Article 10A to PerMen ESDM 9/2017).

Share Divestment Purchase Price Valuation
The purchase price for the Divestment Shares offered to the Indonesian Participants must be calculated based on fair market value. (Article 1 Point 6 of PerMen ESDM 43/2018 adding Article 14(1) to PerMen ESDM 9/2017). Fair market value does not include a calculation of mineral or coal reserves other than those reserves that can be mined during the validity period of the IUP Operation Production or the IUPK Operation Production. (Article 1 Point 6 of PerMen ESDM 43/2018 adding Article 14(2) to PerMen ESDM 9/2017).

The method for calculation of fair market value is the discounted cash flow method for the remaining period of the IUP OP or the IUPK OP and/or market data benchmarking. (Article 1 Point 6 of PerMen ESDM 43/2018 adding Article 14(3) to PerMen ESDM 9/2017).

The detailed methodology for evaluation, calculation and negotiation of the purchase price for Divestment Shares is set forth in the Attachment to KepMen ESDM 84/2020.

Payment of Share Divestment Purchase Price
The purchase price for the Divestment Shares must be paid within 12 months following the date of the declaration of interest to purchase the Divestment Shares. (Article 11 of PerMen ESDM 9/2017).

Divestment Share Transfer and Purchase Price Payment Documentation and Reporting
The transfer of Divestment Shares must be set forth in a Deed of Sale and Purchase of Divestment Shares signed by both parties. (Article 11(1) of PerMen ESDM 9/2017).

Evidence of payment of the purchase price for and transfer of the Divestment Shares must be set forth in minutes that are signed by both parties. (Article 11(1) of PerMen ESDM 9/2017).

PT PMAs holding IUP OP or IUPK OP are required to deliver reports concerning the implementation of Divestment Shares to the Minister of Energy and Mineral Resources through the Director General with copies delivered to the relevant governor and regent/mayor. (Article 12(1) of PerMen ESDM 9/2017). The minutes evidencing payment of the purchase price and transfer of the Divestment Shares along with the Deed of Sale and Purchase of the Divestment Shares and a statement of the change in composition of shareholders must be attached to the report. (Articles 12(2) and 13 of PerMen ESDM 9/2017).

Foreign Share Transfer Restriction Prior to the Divestment Deadline
In the event a PT PMA holding an IUP OP or an IUPK OP has foreign shareholders who hold more than 49% of the shares in the PT PMA prior to the expiration of the time limit for share divestment, the foreign shareholders may transfer their Divestment Shares to other parties provided that an offer to transfer the Divestment Shares is first made to State-owned Enterprises. (Article 148(1) and (2) of PP 96/2021).

State-owned Enterprises must provide their written replies to foreign Divestment Share offers not later than 75 calendar days. (Article 148(3) of PP 96/2021). Note that the regulation does not state the trigger for the commencement of this 75 day period though the regulation should be interpreted to mean that the 75 day period is calculated from the date of receipt of the Divestment Share offer.

If State-owned Enterprises do not intend to purchase the Divestment Shares or do not provide a written reply within the aforementioned period, the PT PMA holding the IUP OP or the IUPK OP can submit an application for approval of the Divestment Share transfer to other parties to the Minister of Energy and Mineral Resources. (Article 148(4) of PP 96/2021).

Dilution of Domestic Indonesian Participant Shareholding Percentages
In the event of an increase in the capital of a PT PMA holding an IUP OP or an IUPK OP after implementation of the divestment of shares, the Divestment Shares are not subject to dilution below the required divestment percentages. (Article 147(11) of PP 96/2021).

In the event Indonesian Participants do not use their rights to purchase shares that originate from an increase in capital, the PT PMA holding the IUP OP or the IUPK OP are required to offer the shares to other Indonesian Participants in a manner that ensures that the ownership composition of Indonesian Participant shareholders complies with the applicable Share Divestment ownership percentage obligations. (Article 1 Point 1 of PerMen ESDM 43/2018 amending Articles 2(10) of PerMen ESDM 9/2017).

Share Issuance or Transfer
Divestments of shares can be undertaken by share sales and transfers by an existing foreign shareholder to Indonesian Participants or by the issuance of new shares by the PT PMA to Indonesian Participants. (Article 1 Point 1 of PerMen ESDM 43/2018 amending Articles 2(4a) of PerMen ESDM 9/2017).

Share Purchase Financing Restriction
PT PMAs holding an IUP OP or an IUPK OP are prohibited from loaning funds to Indonesian Participants for purposes of funding the purchase of shares in the PT PMA. (Article 1 Point 1 of PerMen ESDM 43/2018 amending Article 2(7) of PerMen ESDM 9/2017).

Shares subject to divestment cannot be pledged as security for a debt. (Article 3 of PerMen ESDM 9/2017).

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Satrio Law Firm » Mining » Foreign Mining Divestment Requirements

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Andrew I. Sriro, BA, JD, MH
(Senior Foreign Advocate of Satrio Law Firm)

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