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Indonesia – Administration Of Foreign-Owned IUP Holding Companies Transferred From Local Government To Central Ministry Of Energy And Mineral Resources.

18 May, 2015

 


The MEMR has issued a Circular Letter requiring local governments to transfer administrative authority over foreign-owned mining companies holding IUPs to the central MEMR by 14 October 2015.


Introduction


On 7 April 2015, the Minister of Energy and Mineral Resources (MEMR) issued Circular Letter No. 01.E/30/DJB/2015 regarding the Status Conversion of Mining Business License in the Context of Domestic Investment Into Foreign Investment (Circular Letter).
The Circular Letter is a formal instruction to all relevant local governments (governors, mayors and regents) to transfer administrative authority over foreign-owned IUP companies (PMA Companies) to the MEMR by no later than 14 October 2015. The transferred IUPs will be converted to PMA IUPs in accordance with relevant laws and regulations.
The above instruction implements Article 112E of Government Regulation No. 77 of 2014 (GR 77/2014). This Article states that relevant local authorities must deliver the documentation relating to Exploration IUPs, Production Operation IUPs, Special Production Operation IUPs for transportation and selling and Special Production Operation IUPs for processing and refining:

 

  • to the extent held by PMA Companies; and
  • issued before the enactment of GR 77/2014,

to the central MEMR, within one year of the enactment of GR77/2014, to be converted by the central MEMR in accordance with relevant laws and regulations.


Implications For PMA Mining Companies


The issuance of this Circular Resolution crystallises the commitment of the central MEMR to assume supervision over PMA IUPs. Regional control of IUPs is an example of the process of regional devolution, an important element of Indonesia’s current constitutional framework. The Circular Letter continues the policy of the central MEMR in seeking to reinstate a greater level of central control over IUPs in general, and foreign-owned IUPs in particular.

 
In theory, this change ought to simplify various unpredictable local standards and policies imposed by different governors and regents/mayors on PMA mining companies. This might be particularly helpful in dealing with the unpredictable timing for obtaining recommendations from those local authorities for changes to shareholders, Articles of Association, BOD and BOC members and other largely operational matters.

 

Our sense is that this process is not without challenges. This is especially so given the lengthy period during which local authorities have controlled and administered IUP holding companies. Local authorities could consider challenging the process on the grounds of regional autonomy or (as discussed below) not proceeding quickly and efficiently with the required conversions.


The key practical question arising from the Circular Letter is how this process will actually be implemented. Neither GR 77/2014 nor the Circular Letter sets out a clear process to convert the existing IUPs into ones administered by the central MEMR. Our initial take on this is that the IUPs would, in theory, have to be cancelled and reissued (unless existing regulations are revoked or amended). The issuing authority (i.e. the relevant regional issuer) would need to do this, with consequent potential for delays or conflicts.


As ever with Indonesia, it would be helpful if further written guidance could be provided on these issues. We will be consulting with the MEMR and will continue to share our thoughts on this as they develop.

 

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For further information, please contact:

 

Sean Prior, Partner, Ashurst 

sean.prior@ashurst.com


International Trade Law Firms in Indonesia

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