Mining Regulatory Framework: Problems and Issues in Indonesia

- with Halmahera Case -

By Joseph Viandrito

March 2013

Questions

1. Regulatory framework: Do the new Mining Law and its subordinate regulations meet your expectations? Which best or worst practices have you seen emerge under the new legal framework so far?

2. Contracts of Works : There is intense pressure from various groups to renegotiate/ terminate Contracts of Works due to various reasons. What is your opinion and position about this?

3. Mining issues: What are the most urgent issues related to mining practices (waste management, land acquisition, forest area used permit, community health, labor, indigenous rights, biodiversity, illegal mining, mining license/ contract, or others )?

The Mining Law No. 9/2009

Good Newsfor mining industry

Bad Newsfor mining industry

More Central Government control over Regional Government

Move from Contract based system to license system

20% (versus 51%) foreign divestment may still be manageable, and enable mining companies to divest in stock market

Too many new subordinate regulations: a strict Divestment Policy, Export Tax Increase, no more raw materials export and complicated procedures for export

Government drives for transparency, avoiding transfer pricing and concession trading

Intrusive controls over mining operations and use of local mining contractors

Starting point for dialogue among stakeholders and a legal cornerstone for Indonesia’s mining industry

Smaller size concession mines affect economies of scale

National government welcomes and supports foreign investment and commitment for MP3EI

Possible discrimination treatment

Opportunity in smelter industry Overly Nationalistic Tone

Clear mapping of mining area, prevent regional governments from easily issuing mining permit

Constant pressure from resource nationalist and regional autonomy figures to change the Mining Law

Overview of major regulatory frameworks on mining...there appears to be a power struggle: Nationalist vs. Localist, Protectionist vs. Liberalist...

Resource

Nationalism

Pressure &

„Hattanomics‟

took a lead

National

Government

Fights

National

Government

Fights Back

Introduce

the CoW

framework

Power struggle:

National vs.

Local govt. &

Nationalist vs.

Liberalist

Regional

Autonomy

Law No. 22

& 25 of

1999, and

No. 32 of

2004

Law No.

9/2009 on

Coal and

Mineral

Mining (the

Mining Law).

Illegal Mining

and Bad

Mining

Practices,

Rush to

Export Raw

Material

Ministerial

Regulation

No. 7/2012

on the

increase in

Value Added/

Smelter

Huge

Mining

Investment

Drives

Competition

ANI and

APKASI

Won a

judicial

Review

from MA

towards

PP 7/2012

ESDM

Minister

Regulation

No. 11/

2012 and

No. 24/2012

?

Small miners

are dying

Disputes

on Mining

Permits,

Extensive

Illegal

Mining,

Illegal

Logging,

Corruption s

Finance Minister

Regulation

75/2012

20% tariff on

exports of 65

types of

minerals

PP No

24/2012:

Divestment

Policy 51%

PP No 23/2010:

Divestment

Policy 20%Pro Market

Supporters:

“Back to the Law

No. 11/1967”

Localist &

Pro Market

Fight

Trade Ministry

Regulation No

29/2012: 20%

Export Tax

Mining Law 1967

CoW status

changes, smelter,

divestment, more

revenue & bigger

role of national

government over

local govt.

Presidential Decree No. 3

of 2012 – Establishment

of “Contract of Work

Renegotiation” Team)

Big Miners

complaints,

even some

refused the

smelter policy

Contract of Work

Renegotiation

What makes it different now?

CoWs and CCoWs will be extended as IUPs, not by an extension of the CoW or CCoW itself.

• IUP issued by the Minister, not Regional Government

• Minister must consider the reserves within the work area and the maximum benefit in the interests of the State when granting an IUP

• Minister can reject applications for extension if the holder of the CoW or CCoW has not shown good performance in mining exploitation

• Any land area of a CoW or CCoW that is not included in the IUP will become a State Reserve – contemplates that it will be necessary to reduce size of CoWs and CCoWs to maximum size permitted for IUPs

working contract area

timetable for operation-production

processing obligation (nickel purification)

participation of local/national mining

service companies

divestment obligation

state revenue

The Key ActorsThe team is led by Coordinating Minister for the Economy Hatta Radjasa. Its members consist of the Minister of Energy and Mineral Resources Jero Wacik,who is also currently the chairman of the board. There is also Finance Minister Agus Martowardoyo, Interior Minister Gamawan Fauzi, Justice Minister Amir Syamsudin, Industry Minister MS Hidayat, Trade Minister Gita Wirjawan, Forestry Minister Zulkifli Hasan, Minister of SOEs Dahlan Iskan, Cabinet Secretary Dipo Alam, Attorney General Basrief Arief, BPKP Mardiasmo Head and Head of BKPM Chatib Basri. Meanwhile, Director General of Mineral and Coal Thamrin Sihite act as the secretary.

Regulatory Framework & TimeframeThe establishment of this team is based on Presidential Decree No. 3 of 2012 which was signed last January 10, 2012. The team is tasked with evaluating the work agreement contract work and mining business. The team provides report to the president every six months or whenever necessary. The team will work until December 2013.

The Power of Regional Autonomy

- and the risk for WBN -

The regional authorities of the provinces, regencies and municipalities shall

administer and manage their own affairs according to the principles of regional autonomy and the duty of assistance

(1945 CONSTITUTION Article 18 (2)

Many mining companies operate inside or close to WBN mining areas. They already have IPPKH (Permits for Forest Borrow & Use for mining exploration activity - Izin Pinjam Pakai Kawasan Hutan Untuk KegiatanEksplorasi Tambang) from the Ministry of Forestry:

1. PT Adita Nickel Indonesia (#1)2. PT Adidaya Tangguh (#2 – Blok 6, dan #3 – Blok A1) 3. PT Bintara Hardasurya #4 – Blok D1, dan #6 – Blok D4)4. PT Gane Tambang Sentosa (#7)5. PT Indotama Mineral Indonesia (#11 – Blok H 3)6. PT Nusa Halmahera Minerals (#12)7. PT Zouk (#15 – Blok G2)(Source: Forestry Ministry)

• Will they create possible threats to WBN (permits, concession, etc.)?• How are their ties with the local government? • Who owns those companies?

The provincial government has the right to cancel the license if the mining

activities destroy the environment (Law No. 32 of 2009 on the Protection and

Management of the Environment).

State-Owned Enterprise and Foreign Enterprises usually lose in court against local governments: 1). PT Tambang Batu Bara Bukit Asam Tbk. lost against 16 new mining licenses in Lahat South Sumatera. 2) PT Aneka Tambang Tbk. (Antam) lost against one local company in Konawe Utara. 3) Rio Tinto Indonesia lost against 14 new mining licenses in Morowali, Sulawesi Tengah. 4). PT Inco Tbk lost against PT Hotman Internasional in Morowali

5). Churchill Inc. lost against PT Nusantara (owned by Prabowo) in East Kutai.

Overlapping of Government RegulationsPossible impact

to WBN

A consortium of NGO filed a lawsuit against Law 41/1999 that allow 13 companies (including WBN) to have open-pit mining in protected forest area.

Key Actors to target

NGO Hardliners and Parliament members – Commission V continue to pressure for the revision of Law No. 19/2004 back to Forestry Law No. 41/1999, since the law gives too much leniency to miners, while the previous law strictly forbids open-pit mining in the protected forest. The law creates many disasters, such as landslides and flooding due to excessive logging.

NGO: ELSAM, Walhi, Jatam. They once filed a lawsuit against this law, but failed.Parliament: -Com.V :BahrumDaido (F-PD)

CoW remains valid for their stating period but must ‘adjust’ to the new Mining Law. This ‘adjustment’ has not been resolved yet, as well as with WBN. However, the government aims to conclude in 2013.

A team has been formed by Presidential Decre, led by Hatta Rajasa

An NGO consortium TAPHL, whichconsist of 92 NGO activists

IUPs may be issued for different minerals to different parties in the same concession area, or may also overlap with plantation companies or with government rights to construct transmission lines. This ‘coexist’ situation can be faced by WBN, since concession for 7 other companies can also exist in WBN concession area.

Local govt., BPN, Thamrin Sihite (now manage IUP reconciliation, Minister of Forestry, PLN)

Law

No.19/2004

Forestry

Pressure continues to revise the current Forestry Law No.

19/2004 to be back to the Forestry Law No. 41/1999. The Law

no. 19/2004 has provided legal certainty for the continuation

of mining activities, which in turn provides employment

opportunities, and ensure the regional economic growth.

Forestry versus Mining…and 13 companies (incl. Weda Bay Nickel) in the middle of controversy

Landscape of Issues

Issues at the National Level

Contract of Work Renegotiation

IssueRegional

Autonomy Power Issue

Overlapping Government Regulations

The Mining Law No. 4/2009

Divestment Policy

(Regulation No. 24/2012)

Mining Permits and Disputes

Smelter policy & Ban on Raw

Material Export(Regulation No.

7/2012)

Biodiversity Conservation

and NRMControversy on WBN’s Forest-

use Permit

Indigenous Rights and Local

Community Issues

Hatta-nomicsand Resource Nationalism

Labor issues

Land acquisition and Involuntary Resettlement

Waste issues and environment

management

Export Tax and Royalty Policy

Community Health, Safety, Security and

Welfare

Mining Area & Time period

Mapping of issues and stakeholdersNo. Issues PRO CONS

1. Contract of Work Renegotiation

National Government (President, Minister of ESDM, Trade, Industry), Parliament (DPR/DPD), Local Government, NGOs, Associations

CoW Holders

2. Open-pit Mining in Protected Forest Area

Megawati & President SBY, Ministry of ESDM, Trade, Industry

Local Governments in Kalimantan, TAPHL (NGO Consortium), WALHI, JATAM, KIARA, KAU.

3. Land Acquisition and Involuntary Resettlement

Association of 17 head of villages from Central Halmahera

WALHI, JATAM, KIARA, WALHI MALUKU UTARA, LBH PRO YUSTISIA.

4. Indigenous Rights and Local Community Issues

None Marzuki Alie (DPR), AMAN, Forest Watch, JKPP, Greenpeace, Komnas HAM, Achmad Santosa (UKP4), BirdLife. and Supporters Alliance for Pagu (Halmahera) Indigenous People.

5. Biodiversity Conservation (of WBN)

None WALHI, JATAM, WWF, CI, TNC, BirdLife, DirGenof Forest Conservation – Forestry Ministry, University of Pattimura, NGO Hualopu, KAU,Walhi Maluku Utara (13 local NGOs)

6. Community Health, Safety and Security

None PB HMI, WALHI, JATAM, KAU, KIARA, FORMADA.BirdLife, Walhi Maluku Utara (13 local NGOs)

7. Labor Issues Parliament (Commission VII, HIPPI,National Government

Manpower and Transmigration Department -East Halmahera District.

8. Waste & Environmental Management

None NGOs (JATAM, WALHI and Kiara), Parliament (Satya - Commission VII).

- Mapping from: interviews & desk review -

Divestment Policy

PRO: National/ local govt., Indonesia businessmen, NGO, media, Marwan (expert)

AGAINST: Multi-National Corporations, CoW Holders

Export Tax Regulation

PRO: National Government, Expert (Marwan), DPR (Satya), NGOs.

AGAINST: Local Government, National/ Local Companies and Importers of Indonesia’s Minerals

(For Nickel, biggest importers : China, Japan,Europe).

Regulation No. 7/2012 on the increase in Value Added/ Smelter

PRO: NATIONAL GOVERNMENT, Marwan (Expert), DPR (Satya), DPD (Stefi)

AGAINST: BUSINESS/ASSOCIATION – (ANI, IMA), KNPI, LOCAL GOVERNMENTS

Controversy of The Mining Law No. 9/2009

NEED REVISION FOR BIGGER ROLE OF CENTRAL GOVERNMENT: National Government (ESDM),

Parliament, Business Assosiation

NEED REVISION FOR NATIONALISM IDEA: GMKN, Muhammadiyah, Nahdlatul Ulama, Expert

Stakeholders’ standpoint

Mining in the years aheadHuge investment, but unprepared

companies towards smelter era and small miners are dying

Halmahera in the years aheadMining and Plantation areas over Nature Reserves

Halmahera in the years

ahead

Mining and Plantation areas over Indigenous

People Areas

Tribes of Halmahera Island

Joseph Viandrito

joseph.viandrito@yahoo.comPhone: 0821 6639 2772

Thank You