New changeS to the mining law

New Amendments to the Mining Law - 

Impacts to Financing Transactions

Recently, Law No. 3 of 2020 on Amendments to the Mining Law No. 4 of 2009 (Law No. 3). Currently, Law No. 3 is being heard at the Indonesian Constitution Court. The applicants argued that Law No. 3 is unconstitutional because it gives too much to the private sector.

In this article, we would like to focus on what changes in Law No. 3 which may impact on the financing transactions. Mining is a heavy capitalised business relies heavily on financing.

There are some changes under Law No. 3 which lenders need to take note:​​

Restriction to Encumber Mining Products
Law No. 4 of 2009 does not prohibit encumbrance of mining products. Under  Law No. 4 of 2009, mining products are belonged to the state until the relevant royalties (production fees) have been paid. This means we can create a valid security when the relevant royalties have been paid.  

Article 93C of Law No. 3 prohibits encumbrance of mining products expressly.  Any existing security over mining products will be deemed invalid from the effective date of Law No. 3, 10 June 2020 and lenders will not be able to have security over mining products going forward.

One Mining Company may Have More than 1 Mining Licence (IUP)
Under Law No. 4 of 2009, the general rule is one company may only hold 1 IUP, unless it is a listed company.

Under Law No. 3, one mining company may hold more than 1 IUP if:

• it is a state owned company; or
• the IUP is only in respect of non-metal mineral or rocks.

The financing structure will be simpler if the borrower holds all the mining licences.

It is unclear to us if the mining company has an IUP for coal or metal mineral product, whether it can have an additional IUP for non-metal mineral or rocks or all IUPs must not be in respect of coal or metal mineral products.  

Restriction on Transfer of Shares
Under the MOEMR Regulation No. 7 of 2020, it appears that share transfer during the exploration stage is possible provided that an approval from the Minister of Energy and Natural Resources (MOEMR) or a governor is obtained.

Under Article 93A of Law No. 3, non-listed shares in a mining company may not be transferred without an approval from the MOEMR.

​An approval may be given if the company has fulfilled the following conditions:

• the exploration stage is completed; and
• the company fulfilled the administrative, technical, environmental and financial requirements.

An implementation regulation will be issued to regulate on the transfer of shares.
This could impact on the enforcement of pledged shares if the pledged shares are shares in a mining company which is still at the exploration stage.
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Divestment Rules
The timeframe and percentage of divestment for each stage under the divestment rule are not stated in the Law No. 3 and they will be regulated further under a government regulation. It remains to be seen what the changes would be.

Adjustment of Existing IUPs to the Law No. 3
Under a transition provision of the Law No. 3, the existing IUP holders have to adjust their IUPs to be in accordance with the Law No. 3 within 2 years from the date the Law No. 3 was enacted.

Lenders should check in due course with the obligors who are IUP holders, if their licences have been adjusted accordingly.

 








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