18 June, 2014
Legal News & Analysis – Asia Pacific – Indonesia – Energy & Project Finance
On March 13, 2014, Indonesia’s Ministry of Forestry (the “MOF”) issued MOF Regulation No. P.16/Menhut-II.2014 (“Reg P.16/2014″), which sets out the currently applicable requirements and procedures for the issuing of Borrow-Use Permits. The new regulation replaces but does not fundamentally alter the previous regulation governing Borrow-Use Permits, MOF Regulation No. P.18/Menhut-II/2011 dated April 4, 2011, as lastly amended by MOF Regulation No. P.14/Menhut-II/2013 dated February 25, 2013 (“Reg P.18/2011″).
Background
The use of a forest area for non-forestry activities, such as mining, requires a Borrow-Use Permit issued by the MOF. A Borrow-Use Permit may only be issued for forest areas classified for production or protection. In protection forest areas, only underground mining is permitted, although limited surface activities may occur for exploration. The requirements and procedures to obtain a Borrow-Use Permit for mining activities differ in the exploration stage as opposed to the operation production (i.e., exploitation) stage.
Thirty Percent Rule
Reg P.16/2014 continues the 30% rule previously applicable under Reg P.18/2011.
If a Borrow-Use Permit is for a province whose forest areas constitute less than 30% of the area of rivershed in that province, the area of the island on which the province is located, or the total area of the province itself, then the applicant must provide land compensation to the MOF for the forest area to be covered by the Borrow-Use Permit. However, if the Borrow-Use Permit is for a province whose forest areas constitute more than 30% of the area of rivershed, the island, or the province, then no land compensation is required, and the applicant must instead pay a fee known as “non-tax state revenue” (penghasilan negara bukan pajak or “PNBP”) and commit to reforestation and rehabilitation at the conclusion of the mining activities.
The 30% rule applies only for Borrow-Use Permits for operation production stage mining activities, and not for exploration stage mining activities. Although Reg P.18/2011 previously required that land or non-tax state revenue compensation also be provided for Borrow-Use Permits in the exploration stage if sampling occurs, Reg P.16/2014 has removed this requirement.
Ten Percent Rules
Reg P.16/2014 does not revise the various 10% rules previously enacted under Reg P.18/2011.
Borrow-Use Permits for operation production stage mining activities are restricted in aggregate to a maximum 10% of any single forest area for which a commercial forestry license has been issued. They are also restricted to a maximum 10% of the total forest area for which commercial forestry licenses have not yet been issued in any single regency/municipality.
Reg P.16/2014 continues the exemption from the 10% rules under Reg 18/2011 for exploration stage mining activities. Reg P.16/2014 also extends these exemptions to geothermal and oil and gas production activities.
Limitation On The Use of Production Forest Area
Under both Reg P.16/2014 and Reg P.18/2011, Borrow-Use Permits are not permitted for mining activities in production forest areas that are (i) natural forests subject to “Forestry License for Ecosystem Restoration” requirements, (ii) used as buffer zones directly adjacent to protected and/or conservation forest areas, or (iii) stipulated as “protected areas” or intensive silviculture system areas. Reg P.16/2014 adds that Borrow-Use Permits are not permitted for mining activities in areas licensed for commercial forestry use which have been issued with certificates rated “good” for sustainable cultivation (sertifikat pengusahaan/pemanfaatan hutan secara lestari (PHPL) dengan nilai “baik”).
Reg P.16/2014 creates a new exemption from the foregoing limitations for geothermal and oil and gas production activities.
Buffer Zone Requirement Removed
Reg P.18/2011 previously required that a Borrow-Use Permit holder maintain a 500-meter buffer zone against the border of any conservation area to which it was adjacent, if the Borrow-Use Permit is intended for mining activities. This requirement has been removed in Reg P.16/2014.
Priority For Geothermal And Oil And Gas Production
Reg P.18/2011 previously provided generally that priority would be given to urgent activities having higher national interest without specifying particular economic activities to which this priority would apply. Reg P.16/2014 clarifies that if a forest area subject to a Borrow-Use Permit is required for geothermal or oil and gas production, or for the electricity sector, the permit may be amended or the subject area reduced to facilitate these activities.
Diversification In Using Forest Areas
Reg P.16/2014 does not change existing regulations governing the diversification of activities under a Borrow-Use Permit.
In principle, a Borrow-Use Permit is issued for a single purpose. If the holder of a Borrow-Use Permit intends to diversify the uses made of a forest area, it may apply to the MOF to do so by submitting the new business license, new environmental documents, and revised work plan.
Diversified use of a forest area may be made not only by the holder of the Borrow-Use Permit, but also by third parties, provided that the third parties enter into a cooperation agreement with the holder of the Borrow-Use Permit. The cooperation agreement must be made in notarial deed form and submitted to the MOF.
Borrow-Use Permit Period
A Borrow-Use Permit for mining operation production activities is valid only as long as the underlying mining license (izin usaha pertambangan or “IUP”) is valid. A Borrow-Use Permit for mining exploration activities is issued for two years and may be extended. In the case of a Borrow-Use Permit for mining operation production activities, an in-principle license is first issued. The in-principle license sets out obligations to be satisfied before the full Borrow-Use Permit may be issued.
Reg P.16/2014 clarifies that a Borrow-Use Permit is also issued for the life of the underlying license in the case of geothermal and oil and gas production, electricity generation, transmission and distribution, and communications networks.
Use Of Forest Areas Predating The Forestry Law
Reg P.16/2014 provides that a party making use of a forest area for a purpose which predates the enactment of the Forestry Law (Law No. 41 Year 1999) must now apply for a Borrow-Use Permit for these activities. This requirement captures, for example, pre-existing uses of forest areas for transportation, electricity, telecommunication, geothermal, oil and gas, water, and other activities. Where land compensation requirements apply, the holder of the Borrow-Use Permit must provide the required land compensation within two years as of the issue of the Borrow-Use Permit.
For further information, please contact:
Michael S. Carl, Soewito Suhardiman Eddymurthy Kardono
Florence Gracia Santoso, Soewito Suhardiman Eddymurthy Kardono
Soewito Suhardiman Eddymurthy Kardono Energy & Project Finance Practice Profile in Indonesia