[co-author: Saputra Zuhal]
On 6 January 2022, the President of Indonesia announced that the Government, through the Ministry of Energy and Mineral Resources (“MEMR”), has revoked 2,078 Mining Business Licenses (‘IUP’ for ‘Izin Usaha Pertambangan’), accounting for 40% of all IUPs issued by the Government because of business’ failure to comply with several requirements under Indonesian mining law. The Government plans to complete the revocation process this month and transfer the area covered by the revoked IUPs to local entities and potential investors.
The revoked licenses account for 1,776 mineral licenses (including metallic and non-metallic minerals and rocks) and 302 coal licenses, which account for more than three million hectares of land located in a number of provinces spread across Indonesia, including Kalimantan, Sumatra and Sulawesi.
The mining licenses have been revoked after a series of evaluations since June 2021, which show several violations committed by mining companies holding the licenses, ranging from failure to submit an annual work plan and budget, not carrying out operational activities or transferring IUPs to other companies. The government further explained that evaluation had been conducted on 2,343 mining companies, with another 265 mining companies currently under review.
Although no formal decisions have been issued related to this, the Government states that Article 33, paragraph 4 of the Indonesian Constitution, which states that earth, water and natural resources are controlled by the state and should be used as much as possible for the prosperity of the people, provides a basis for the Government to conduct in-depth evaluations which have now resulted in revocation of the licenses.
The Government has not disclosed the holders of the revoked IUPs, but it is said that the MEMR and Ministry of Investment will disclose the list and execute the revocation process starting on 10 January 2022 and targeting to complete this month. It is planned that the mining area of the revoked IUPs will be "transferred" to local entities such as a local company, a regionally-owned company (‘badan usaha milik daerah’), co-operatives (‘koperasi’), or indigenous groups. However, it remains to be seen how the area covered by the revoked licenses will be transferred to such companies. The Government has also opened opportunities for “credible investors” to manage the territory covered by the revoked licenses.
Next steps
- Although the Government stated that the revocation had implemented a fair investment policy, it is not uncommon for the revocation of licenses to form the basis of administrative or civil disputes, as we saw in 2017 when MEMR had to deal with a number of lawsuits brought by 20 companies whose IUPs were revoked. Companies will need to ensure whether the revocation procedure complies with the law and the government has provided prior notice allowing the companies to remedy any violations related to their licence.
- The revocation of IUPs might also constitute an event of default under a financing arrangement and both borrowers and lenders will need to ensure appropriate procedure and obligations have been satisfied following such revocation.
- The revocation of licenses gives an opportunity for investors to apply for new licenses covering the area of the revoked IUPs, especially for mining non-metallic minerals and rocks, as these licenses are allocated on a “first come, first served” basis.
[View source.]
