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Recently, the Ministry of Energy and Mineral Resources (Ministry) issued regulation number 9/2017 on Procedures for Divestments and Mechanisms to Determine the Divested Share Price for Business Active in the Minerals and Coal Sector (New Regulation). The New Regulation replaces Ministry regulation number 27/2013. In this column we discuss the impact of the New Regulation on foreign investors in Indonesia.
Obligation to Divest Based on the New Regulation
Mining companies which are in the possession of a Mining Production Operation Business License (IUP OP) or a Special Mining Production Operation Business License (IUPK OP) must gradually divest their shares. The first five years as of the start of business operations (i.e. the issuance date of the business license), mining companies have no obligation to divest. The divestment obligation starts at the sixth year as of the start of business and will gradually increase until the 10th year as of business operation start. The minimum percentages of divestment for the sixth until the tenth year are as regulated as follows:
- Sixth year 20%
- Seventh year 30%
- Eighth year 37%
- Ninth year 44%
- Tenth year 51%
The above divestment requirement does not apply for IUP OP-holders whose business operations are focused on processing and/or refining. Obviously, in case a PT PMA mining company is already owned for 51% or more by an Indonesian entity the above investment requirement does not apply.
Pricing and Payment Procedures of the Divested Shares
The New Regulation requires that the price of the divested shares must be based on the fair market value. To determine the price, the reserves of the PT PMA mining company may not be included in the calculation. Under the Old Regulation, the price of the shares was determined based on the replacement cost of investment by the divesting company.
The payment and transfer of the divested shares must be completed at latest 12 months after the signing date of the sales and purchase agreement. Upon full payment and transfer, the divesting company must submit a divestment report to the Ministry.
The New Regulation has been in force since January 20, 2017.
This column is provided by PNB Law Firm Jakarta